IRS Sending Monthly Payments for the Child Tax Credit
$300 Per Month Direct Payments for Eligible Families
Recently, there have been some important changes to the Child Tax Credit (CTC) that expand eligibility and increase the amounts you can claim on your 2021 tax return. Additionally, some households will be receiving advance payments for the Child Tax Credit on a monthly basis.
Here’s what you need to know about the Child Tax Credit and its revised rules for tax year 2021.
The American Rescue Plan Act of 2021
The American Rescue Plan Act (ARPA) – also called the American Rescue Plan (ARP) – made several big changes to federal tax breaks for families, particularly the Child Tax Credit. These tax benefits are designed to help American households that have been struggling with the fallout of the COVID-19 pandemic.
President Biden signed the ARPA into law on March 11, 2021. This was the third major stimulus bill aimed at providing COVID-related relief, and President Biden’s first big piece of legislation since he took office.
What Is the Child Tax Credit?
Under prior law, the Child Tax Credit was available to eligible taxpayers with qualifying children. The credit is typically worth up to $2,000 per qualified child – and up to $1,400 of that is refundable for lower-income families (which classifies it as a partially refundable tax credit).
The Child Tax Credit is claimed on your federal income tax return, Form 1040 or Form 1040-SR. For more information, see IRS Publication 972 (Child Tax Credit and Credit for Other Dependents).
RELATED: Common Tax Questions & Answers
Revised Child Tax Credit for 2021
The American Rescue Plan temporarily expands the Child Tax Credit in many ways, including the following:
- The tax credit amounts will increase for many taxpayers.
- The tax credit for qualifying children is fully refundable, which means that eligible taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
- The tax credit will include children who turn age 17 in 2021.
- Eligible taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.
Keep in mind that these changes apply to tax year 2021 (i.e. your 2021 income tax return) only. Although there are currently proposals to extends these tax benefits, we must treat them as temporary for now.
Increased Amounts You Can Claim for the Child Tax Credit (CTC)
For tax year 2021 only, families claiming the Child Tax Credit on their 2021 tax return will receive up to $3,000 for each qualifying child who is between the ages of 6 and 17 at the end of 2021. Families with younger children will receive $3,600 per qualifying child who is under age 6 at the end of 2021. Remember that under the prior law, the maximum amount of the Child Tax Credit was $2,000 per qualifying child under the age of 17 at the end of the year.
The relevant section from IRS Revenue Procedure 2021-23 states, “Solely for taxable years beginning in 2021, section 9611 of the ARP increases the child tax credit under § 24 of the Code to $3,000 for qualifying children who have attained age 6 but not 18 by the end of the 2021 taxable year, and $3,600 for qualifying children who have not attained age 6.”
The increased CTC amounts are reduced (i.e. phased out) for households with incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.
Increased Refundable Amount for the Child Tax Credit
The American Rescue Plan temporarily made the Child Tax Credit fully refundable for eligible low-income families. This means that the credit can reduce your income tax liability to below zero and result in a tax refund for you.
The relevant section from IRS Revenue Procedure 2021-23 states, “For taxable years beginning in 2021, the child tax credit is refundable for certain taxpayers up to $3,000 for each qualifying child age 6 or older and $3,600 for each qualifying child who has not attained age 6. A taxpayer is eligible for the increased refundable amount only if the taxpayer, or the spouse of a taxpayer filing a joint return, had a main home in the United States for more than half of the taxable year beginning in 2021 or was a bona fide resident of Puerto Rico for the taxable year beginning in 2021. For all other taxpayers, the refundable portion of the credit is limited to $1,400 under § 24(h)(5)(A).”
The IRS encourages people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the Child Tax Credit, as well as any other tax credits they may qualify for – including the Earned Income Tax Credit (EITC) and the Child and Dependent Care Tax Credit. To get a faster tax refund and future advance Child Tax Credit payments, file electronically (a.k.a. “e-file”) online and choose the Direct Deposit option.
Advance Monthly Payments for the Child Tax Credit
The American Rescue Plan also includes a provision that creates advance monthly payments for households who are eligible for the Child Tax Credit. Starting in July 2021, eligible families will receive a monthly payment of up to $300 per child under age 6 and/or up to $250 per child between ages 6 and 17.
Advance payments for the 2021 Child Tax Credit will be sent regularly from July 2021 through December 2021 to eligible taxpayers who have a main residence in the United States for more than half the year. The total of the advance payments is worth up to 50% of the Child Tax Credit amount. The IRS will estimate advance payments based on information that’s included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).