Note: Monthly Child Tax Credits expired December 2021. As a result, eligible taxpayers will no longer receive a monthly advance payment of their Child Tax Credit following the final deposit on December 14, 2021. For more info, visit irs.gov.
If you have kids, you know how expensive they can be! But thanks to a key tax change, some financial relief could be on the way.
The expanded Child Tax Credit, part of the Biden administration’s American Rescue Plan, is set to benefit roughly 39 million American households. This credit will automatically deliver cash payments to eligible families beginning July 15.
Wondering who qualifies for the credit or how to get it? Here’s a closer look at how the expanded child tax credit works and what to know if you’re set to receive it.
What is the child tax credit?
Understanding the child tax credit starts with knowing a little more about tax credits in general.
So what does tax credit mean? In simple terms, tax credits reduce the amount of taxes you owe on a dollar-for-dollar basis. Claiming certain credits can boost your refund or give you a refund, even if you don’t owe any taxes.
Now, what is a child tax credit?
Simply put, it’s a tax benefit for people who have children. The regular child tax credit is designed for people who claim a qualifying child as a dependent.
There’s also an additional child tax credit. In terms of what is additional child tax credit, this credit is available to certain people who don’t qualify for the full regular child tax credit. The additional child tax credit can give you a refund even if you don’t owe any taxes.
Those are the normal tax rules that apply to the child tax credit. But what is the child tax credit for 2021?
Under the American Rescue Plan, the child tax credit expands the amount of the credit itself and delivers payments to families monthly. This enhanced credit is fully refundable so, even if you don’t owe taxes, you can still benefit from it.
How much are the child tax payments?
The advanced child tax credit payments increase the size of the tax credit for eligible families. Ordinarily, the maximum credit you can claim per child is $2,000.
But what is the child tax credit for 2021? Under the American Rescue Plan guidelines, families who claim the credit can receive:
- Up to $3,000 per qualifying child between the ages of 6 and 17
- Up to $3,600 per qualifying child under the age of 6
The credit covers children who will turn 17 in 2021. In terms of what the payments look like, the credit is spread out monthly. If you have kids aged 6 to 17, you can get up to $250 monthly. For kids under age 6, you can get up to $300 per month.
So, say you have a 5-year-old, a 10-year-old and a 15-year-old living at home with you full-time. Your total credit payments could be $800 per month ($300 + $250 + $250 = $800).
Altogether, the payments equal up to 50% of the total child tax credit you’re eligible to claim. You’d claim the rest of the credit when you file your taxes in 2022.
When will payments be made?
The first payment for the expanded child tax credit is scheduled for July 15. Subsequent payments would also be made on the 15th of each month, unless that date falls on a holiday or weekend.
The advance child tax credit payments are slated to be paid from July through December. So you have a six-month window to take advantage of this tax benefit.
Who qualifies for the new 2021 child tax credit?
Eligibility for the advance child tax credit depends on three things:
- Whether you have a qualifying child
- Your filing status
- Your household income
What is a qualifying child for the advanced child tax credit? The IRS uses the regular child tax credit rules here. So a qualifying child means:
- Your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half brother, half-sister or a descendant of any of them
- A child under age 17 at the end of 2020
- A child who didn’t provide over half of their own support for 2020 and lived with you for more than half the year
- A child who’s claimed as your dependent, doesn’t file a joint return and is a U.S. citizen, U.S. national or resident alien
Now, how much money can you make and still qualify for the child tax credit for 2021?
The advance child tax credit is reduced as your income increases. Here’s where the phaseout thresholds kick in:
- $150,000 for married taxpayers who file jointly and qualifying widows or widowers
- $112,500 for heads of household
- $75,000 for all other taxpayers
For every dollar you earn above those limits, your child tax credits are reduced by 5 cents.
Steps to take to receive your payments
If you haven’t filed your 2020 tax return yet, you’ll need to do that ASAP to qualify for the credit. The IRS needs the information on your return to calculate the amount of the credit you’re eligible for.
But what else do you need to do besides file your return? According to the IRS, most people who are eligible to receive the advance child tax credit won’t need to do anything at all. Once the payments start rolling out, they should be deposited to your bank account automatically.
This assumes that you normally receive your tax refund via direct deposit. If you get your refund via paper check, then your advance child tax credit payment will be mailed to you. You may also get your payment via a debit card in the mail if that’s how you received your economic impact payments. If you need to review or update your payment information, you can use the IRS Get My Payment tool.
2021 child tax credit FAQ
The advance child tax credit could put some extra money in your family’s pocket in the months to come. And for the most part, there’s very little you need to do to take advantage of it. To wrap things up, here are some of the most common tax questions about the credit answered.
What is a child allowance?
The child allowance that’s part of the latest round of stimulus funding is an advance payment against the child tax credit. In other words, instead of waiting until next year to get the credit you can get some of it now in the form of monthly payments.
These payments are different from any child allowance stimulus payments you might have received previously.
What if I already filed my taxes?
Your biggest question might be: Can I even get the child tax credit 2021 – what if I already filed? And the answer is yes. In fact, the IRS urges taxpayers to get their 2020 returns in if they haven’t yet so their eligibility to receive the payments can be determined.
What if I had a baby in 2021 - do I still qualify?
What if I want to change the bank account where I will receive this credit?
Can I opt-out of the child tax credit?
It’s possible that you may not want to receive advance child tax credit payments. In that case, the IRS will allow you to opt-out. You’ll be able to do that online once the Child Tax Credit Update Portal launches on the IRS website.
If you’re eligible for the advance child tax credit 2021, consider the best ways to use the extra money. For example, if you don’t need it to pay bills you might deposit it into a savings account to grow your emergency fund. Or you could use it to pay down debt. Giving some thought to how you can put the money to work beforehand can ensure that your child tax credit payments are put to good use.