The American Rescue Plan (ARP) has increased the Child Tax Credit (CTC) on a temporary basis for 2021. The new expanded CTC will increase to $3,600 per child ages 0-5 and $3,000 per child ages 6-17. Additionally, the ARP has made the CTC fully refundable.
Here are some need-to-know facts about the 2021 CTC:
Families will get advance payments for the CTC beginning in July.
Eligible families may receive an advance payment of up to $300 per month for each child ages 0-5 and up to $250 per month for each child age 6-17. Instead of receiving this credit as part of your tax return, these payments are sent in advance and represent a portion of the tax year 2021 CTC. The advance payments will begin on July 15, 2021 and will be sent monthly through December 15, 2021.
Families may opt out of the advanced payments.
The IRS launched a CTC Update Portal that allows you to unenroll or opt out of these monthly advance payments. The portal can be reached here.
The unenroll feature can also be helpful to any family that no longer qualifies for the Child Tax Credit or believes they will not qualify when they file their 2021 return.
This could happen if, for example:
a. Their income in 2021 is too high to qualify them for the credit.
b. Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
c. Their main home was outside of the United States for more than half of 2021.
CTC payments will come by direct deposit or mail.
The IRS will utilize the banking information it already has on file for families to distribute the CTC payments. Those who do not have banking information on file with the IRS will receive their advance payments by mail using the address on file with the IRS.
Eligibility for the expanded credit will phase out quickly.
To be eligible for the full amount of the credit, you must have an eligible child and meet one of the following qualifications:
a. Have a single filing status or married filing separately making no more than $75,000 a year
b. Have a married filing jointly status or a parent filing as surviving spouse earning no more than $150,000 a year,
c. Have a head of household filing status earning up to $112,500 per year
If you have an income over these amounts, the credit will be reduced by $50 for each $1,000 that your Modified Adjusted Gross Income (MAGI) exceeds these thresholds.
Example:
A couple using married filing jointly with a child between the age of 6-17 and earning $160,000 would still receive the CTC credit but it would be reduced by $500 ($10,000/$1,000 x $50 = $500).
Families who are not eligible for the expanded CTC because they earn higher than the thresholds mentioned above may still be able to claim the CTC up to $2,000 under the existing tax provision for each qualifying child under 17. This credit amount is still available to individuals earning up to $200,000 and married couples filing jointly earning up to $400,000.
Mixed-immigration-status family can be eligible for the CTC.
If a child has a Social Security Number and their parent(s) have an Individual Taxpayer Identification Number (ITIN), they can get the CTC if they meet the other income and eligibility requirements.
Receiving the expanded CTC will not impact your eligibility for means-tested programs.
Receiving the expanded CTC will not change your eligibility for programs such as Medicaid, Supplemental Nutrition Assistance Program (SNAP) or Supplemental Security Income (SSI).
These expansions for 2021 only.
ARP expanded the CTC for 2021 only.