American Rescue Plan Act-Child Tax Credit

For the 2021 tax year, the Child Tax Credit increased to $3,600 per child under the age of 6 and $3,000 per qualifying child between 6 and 17 years old and is fully refundable thanks to the American Rescue Plan Act.

2020 was a strange tax filing year with the Economic Impact Payment credits but the 2021 tax year is sure to be even more exciting with the new Child Tax Credits. The IRS writes:

“There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.

The expanded credit means:

• The credit amounts will increase for many taxpayers.

• The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don't have earned income or don't owe any income taxes.

• The credit will include children who turn age 17 in 2021.

• Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.”

So what does that actually mean for you and your family?

For the 2021 tax year, the Child Tax Credit increased to $3,600 per child under the age of six and $3,000 per qualifying child between 6 and 17 years old and is fully refundable thanks to the American Rescue Plan Act. This plan also includes the possibility of an advanced tax credit being paid directly to tax-payers. In the near future, letters will be sent out to families who may be eligible, based on their 2020 tax return. If they haven’t filed their 2020 taxes yet, the IRS will use their 2019 return. If families qualify for the advanced credit, they will receive a second letter detailing an estimate of their monthly payment. Payments are scheduled for July 15th, August 15th, September 15th, October 15th, November 15th, and December 15th and they will be received via check or direct deposit.

Most families won’t be required to take any action to receive the payments and the amounts will range from $300 per month for qualifying children under the age of six to $250 per month for each qualifying child between ages six to seventeen. Additionally, there will be an online portal released later this year where taxpayers can update banking information for accurate and timely payments as well as notify the IRS of any changes in their income, filing status, or even the number of qualifying children. If a taxpayer wants to keep the full amount as a tax credit for when they file in 2021 they can opt out of the advanced tax credit payments on the same portal.  

Throughout the summer the IRS will be adding more staff and tools to accommodate this massive shift in the department and encourages families to stay up to date on the credits and advancements at IRS.gov/childtaxcredit2021.