Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:
- Amount has increased for certain taxpayers
- Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
- May be partially received in monthly payments
The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.
The IRS will pay half the credit in the form of advance monthly payments beginning July 15 and ending in December of 2021. Taxpayers will then claim the other half when they file their 2021 income tax return.
Qualifications and how much to expect
The child tax credit and advance payments are based on several factors, including the age of your children and your income.
- The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments starting July 15th and ending December 15th.
- The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments starting July 15th ending December 15th
To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:
- Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool. A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
- Income less than certain limits
You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.
Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.
Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.
IRS’s child tax credit update portal
Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.
The IRS also has a non-filer portal to use for certain situations.
* Unfortunately, the child tax credit portal seems to have issues, one of our team members stated “I tried to unenroll from the child tax credit advance payments and the ID.me option to create an account on the portal which is not user friendly. It took me almost a half a dozen tries to get it to actually “see” the pictures of my driver’s license. Then a couple tries to get the face scan to work. And after all that, the IRS couldn’t verify my identity. The portal doesn’t give you any solutions to work around this.” That team member solved this by setting up an IRS account using the Online Account application at https://www.irs.gov/payments/view-your-tax-account
Your ability to take advantage of these provisions depends on your 2021 income. If you know that you will be near one of these income phase-out amounts, we should discuss scenarios where deferring income to 2022 or accelerating deductions into 2021 might make sense for you. If you have any questions, please contact your Boyum Barenscheer advisor.