In March 2021, a year after the onset of COVID-19 in America, the $1.9 trillion American Rescue Plan was passed. In addition to stimulus payments, vaccination initiatives and financial relief for small businesses, this plan made some major temporary changes to the child tax credit.
If you’re a parent or guardian, you could be eligible to receive a one-time enhanced tax credit for your child. Here’s what families need to know.
Changes to the Child Tax Credit
Families will see a one-time increase in the tax credits for the 2021 tax year. For this year only, eligible families may receive up to $3,600 for children five and under and up to $3,000 for children ages six to 17. The child tax credit includes the original base credit amount of $2,000 per eligible child plus the enhanced benefit increase of $1,000 to $1,600 increase per child.
Advanced Payments for 2021 Child Tax Credit
The IRS is required to send out payments to qualifying families in advance. These payments will be half of the amount families are eligible to receive, and they are expected to be sent to families in six installments between July and December 2021. Much like the stimulus checks, families can expect to see these payments appear via direct deposit into their accounts or in the form of a check received through the mail. Families who do not wish to receive the monthly installments can opt out by going to the IRS website
The IRS will determine eligibility based on your 2020 tax return, or your 2019 tax return if no 2020 return is on file. If your circumstances have changed and you either become eligible or ineligible for the credit, the IRS will be developing a portal that will allow you to update your information. This will be important for families who may have lost income or had a baby in 2021.
The American Rescue Plan has changed several eligibility requirements for families, opening up the child tax credit to more parents who may previously not have qualified.
For this year only, parents with children aged 17 will be eligible for the child tax credit. Previously, children over the age of 16 did not qualify.
Additionally, the $2,500 earnings floor has been temporarily lifted, and the credit has become fully refundable. This means that families who report less than $2,500 in adjusted gross income may still qualify for the tax credit and could be refunded up to the full amount.
Other eligibility requirements are still in place. Just as in previous years, children must:
- Be claimed on your tax return
- Be related to you
- Live with you for at least six months during the year
- Have a Social Security number
- Be a citizen or U.S. resident alien
To be eligible to receive monthly advanced monthly child tax credit payments, tax payers must have filed a 2019 or 2020 tax return and claimed the child tax credit on their return or provided their information to the IRS using the non-filer IRS tool.
Reduced Amounts for High-Income Families
For 2021, not all families will be eligible to receive this additional $1,000 or $1,600 in enhanced child tax credits. Single filers with an AGI of $75,000 or joint filers with an AGI of $150,000 will start to see a reduction in enhanced benefits.
It’s important to note that these reductions only refer to the additional amount, not the base $2,000 credit. The enhanced credit will be reduced by $50 for every $1,000 over the AGI threshold based on filing status.
For the base $2,000 credit, the same phase-out system applies as it did for 2020. Single filers with an AGI above $200,000 and joint filers with an AGI above $400,000 will see a reduction in child tax credits - $50 for every $1,000 over the AGI threshold.
These changes to the child tax credit are temporary, but they can offer eligible families some important financial relief.
To calculate how much your child credit amount is go to: https://www.kiplinger.com/taxes/602334/2021-child-tax-credit-calculator
This content is developed from sources believed to be providing accurate information, and provided by Attune Financial Planning. The opinions expressed and material provided are for general information only.