Changes to Child Tax Credits in 2021

Effective July 15, the IRS will start issuing child tax credits on a monthly basis to eligible families as part of the American Rescue Plan.  This enhanced Child Tax Credit expands the benefit from a $2,000 credit up to $3,600 per child.

Who is eligible?

Qualifications for this increased credit is based on your income and tax filing status.  To receive the full Child Tax Credit, you must have income below1:

  • Married filing joint with income under $150,000
  • Head of Household with income under $112,500
  • Single taxpayers with income under $75,000

Credit payments will phase out by $50 for every $1,000 of income over the threshold.  Those over the threshold but under $400,000 married filing joint or $200,000 filing single will still qualify for a $2,000 credit.

The maximum amount that families will receive annually is $3,600 per child under 6 years old and $3,000 per child between the age of 6 and 17. Children born in 2021 are eligible as well.  Monthly payments will start in July 2021, through the end of the year.  The remainder of the credits will be distributed when families file their taxes in 2022.

For example, a family earning less than $150,000 with a child under age 6 would receive monthly checks of $300 from July through December for a total of $1,800.  The remaining $1,800 credit would be received when taxes are filed in 2022.

There are also benefits for children over age 17.  Families of an 18-year-old dependent or full-time college student aged 19-24 will receive a lump sum credit of up to $500 when they file their tax return in 2022.2

How do I sign up?

If you filed taxes for 2020 or 2019 or you signed up for Economic Impact Payments using the IRS’s Non-Filer tool, you will automatically receive payments from the IRS.  The IRS will send payment by direct deposit to the bank account on file.  If there is no account on file, a check will be mailed. The IRS will send a letter prior to sending the first payment, to let you know how much you’ll receive each month.3

If you didn’t file taxes or want to update what is on file, the IRS has set up a Child Tax Credit Update Portal (CTC UP) to make these changes.  If you have new dependents to add since last year, you will need to add them here as well. You can also opt out of monthly payments and instead receive a lump sum next year when you file your taxes.

It’s also important to note that these payments are not income and will not be reported as income on your 2021 tax return4.  However, if you receive credits but no longer qualify or receive payments in excess of what you can properly claim on your 2021 taxes, you will be subject to repayment.1

~Jennifer Baham