How to understand the new 2021 Child Tax Credit

  • The Child Tax Credit is increased to $3,000 per qualifying child for tax year 2021 only
  • Learn how your payments will be distributed
  • Make sure you are set up to receive advance monthly payments sent directly to your bank account

Since many working parents are facing increased expenses due to the pandemic, Congress is temporarily expanding and increasing the Child Tax Credit (CTC). 

This will help many families pay bills and raise them out of poverty, especially during a time when child care and school activities, two very important parts of children’s lives, are less predictable than usual. 

With so many facing lost income, continued low-employment levels and an economy that has not yet recovered, the CTC expansion will help thousands of hard-working families make ends meet. Below, you can learn important information to help you better understand any questions you may have about the CTC.

In a normal year, the Child Tax Credit is a tax credit that most middle- and lower-income families get when filing their taxes, totaling $2,000 for each qualifying child.

The American Recovery Act has expanded this credit — but just for one year.  In 2022, it will go back to being a $2,000 credit determined when a taxpayer files their taxes. 

For tax year 2021 only, the amount of the credit is increased to $3,000 per qualifying child ages six to 18 and $3,600 per qualifying child under the age of six. The IRS counts the child’s age at the beginning of the tax year, so the child’s age on January 1, 2021, is the age that will be used to determine the expanded credit.

The IRS gets information on who has qualifying children, how many they have, and how old the children are from tax returns. If you have children, in order to receive the CTC, you should file your 2020 taxes as early as possible (and, if possible, e-file them) so they can be processed by the IRS quickly.

“For tax year 2021 only, the amount of the credit is increased to $3,000 per qualifying child ages six  or older and $3,600 per qualifying child under the age of six.”    

If a child’s parents are not filing taxes together, it is important that only the parent who is able to claim the child or (children) for the tax credit does so. Otherwise, one or both parents is likely to be audited and any refunds will be delayed.

If you aren’t sure whether you’re able to claim a child for the tax credit, the best place to check is your custody agreement. Most custody agreements include language about which parent can claim which child. 

Advance Payments — Don’t miss the fine print; there’s money involved for your family

Although the expanded tax credit is for tax year 2021, which would normally mean you would receive it in any refund received in spring of 2022, the American Recovery Act also made part of the CTC eligible for advance payment. (This is why you should consider filing your 2020 taxes as soon as possible!)

Between the months of July 2021, through December 2021, the IRS will make advance payments of the CTC for eligible taxpayers. Income thresholds for eligibility are $75,000 or below for “Single,” $112,500 or below for “Head of Household” and $150,000 or below for “Married Filing Jointly.”

The advance payments will be made monthly and be one-twelfth of the total credit the taxpayer is eligible for (that equals $250 a month for each child ages six through 18 and $300 a month for each child under six.) The taxpayer will then get the other half of their CTC like they usually do — as part of their 2021 taxes —which they file in the first part of 2022. 

The advance payments will be distributed through the same payment method the IRS uses for stimulus payments and refunds. If the IRS has your bank account information, they will deposit your advance payments directly in your account each month.

What you need to know in the future

If you have received a refund or stimulus through direct deposit, it will work the same way. If not, the IRS will send you a check, but that will likely delay the payments, so if you include your bank information on your 2020 tax filing you will probably get your CTC payments more quickly.   

There will be a website where taxpayers can report changes to the IRS regarding CTC (for example: your income is now above the threshold and you have phased out of CTC eligibility, your number of children has changed, you have a change in filing status, etc.)

This website isn’t up yet, but once it is we’ll update this post to include a link. It is important to update any significant changes which may impact your eligibility. Otherwise, you will be required to pay back any money you were overpaid — and no one likes an unexpected tax bill.

If you get advance CTC payments during the second half of 2021, you will receive a letter in January of 2022, (around the time you get your W-2’s and any other tax documents in the mail) listing the amount of credit received in advance. It is important that you save your letter because when you file your 2021 taxes, they will ask you for information in the letter.

Need additional help?

Shailana Dunn-Wall (she/her/hers), Christine A. Brunswick Public Service Fellow and Fellowship Staff Attorney at Legal Aid of Nebraska, is the author of this article.

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