- Part of the new child tax credit will be paid in monthly installments from July 15 to December 15.
- Each month, families can get up to $300 per child under age 6 and up to $250 per child aged 6 to 17.
- People who filed a 2020 or 2019 tax return or use a new IRS online tool will get paid.
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It’s expensive to raise children.
To help offset the cost, the US government gives some parents an annual allowance called the child tax credit. The credit reduces the tax bills of people within certain income limits. If the credit isn’t used up, part of it can turn into a tax refund.
The child tax credit has been temporarily expanded under the American Rescue Plan, the massive relief bill signed into law by President Biden on March 11. The credit is now available to more families and pays a larger overall amount. It also allows half the credit to be sent this year as monthly cash payments beginning in July and continuing monthly.
Here are common questions and answers about the child tax credit.
What is the child tax credit for 2021?
Here’s how the American Rescue Plan’s child tax credit compares to the current child tax credit.
Note that the new rules don’t completely replace the current rules; they work in conjunction. If you don’t meet the income qualifications to get the larger credit that’s available for 2021, you can still qualify to get the $2,000 credit up to an AGI of $400,000.
*There are a few more requirements; you can use this tool to find out if a person is a qualifying child.
What if I already filed my 2020 tax return?
If you already filed your 2020 tax return and claimed the $2,000 child tax credit, you don’t have to do anything. Do not file an amended return. The new credit amounts are not retroactive — they only apply to the 2021 tax year.
The IRS will look to your most recent tax return, either 2020 or 2019, to determine whether you’re eligible for the advance child tax credit payments for 2021.
Qualifying families are getting two letters in the mail from the IRS: one stating eligibility and a second with an estimate of their monthly payment.
When will I get the monthly child tax credit payment?
The IRS will automatically issue payments on the following dates to families who qualify:
- July 15
- August 13
- September 15
- October 15
- November 15
- December 15
If you have direct deposit, the payment should show up as pending in your bank account on that date. If the IRS does not have your bank information, you will have to wait for a paper check in the mail.
Later this summer, the IRS will release an update to its online portal where you can opt out of the automatic monthly payments if you prefer. In that case, you would be able to claim the remaining amount of your credit on your 2021 tax return next year.
How much will I get?
Families can get up to $300 per month for each qualifying child under age 6 and up to $250 per month for each qualifying child aged 6 to 17.
The payment amount will be based on your 2020 tax return. If that hasn’t been filed and processed yet, the IRS will calculate your payment using your 2019 tax return, or you may be able to use the new non-filers tool.
Do I need to sign up for the child tax credit?
If you didn’t file a 2020 tax return and don’t plan to because your income is too low, you can use the new non-filers tool to give the IRS the information it needs to make your monthly payments.
If you’re married, make sure to include your spouse’s information as well.
Do not use the tool if any of the following apply to you:
- You already filed a 2020 tax return
- You claimed all your dependents on a 2019 tax return or reported their information in 2020 using the stimulus check non-filers tool
- You are a resident of a US territory
- You or your spouse do not have a main home in the US for more than half the year
- Your qualifying child was born before 2021 and had a Social Security number issued before May 17, 2021
What is a tax credit?
A tax credit is an allowance given to a taxpayer by the IRS that reduces their tax bill on a dollar-for-dollar basis. It’s like having store credit at a retailer — when you apply the credit to your bill, it reduces what you owe.
Some tax credits are refundable, meaning that if your bill drops to $0, you can get the remaining money as a refund after filing your tax return.
The child tax credit for tax year 2020 is only partially refundable. The American Rescue Plan makes the credit for 2021 fully refundable. It also transforms part of it from a lump-sum payment into monthly cash payments from July through December 2021.
What is the child tax credit?
The child tax credit is a popular credit for parents and caretakers.
For the 2020 tax year, the child tax credit gives up to $2,000 per qualifying child — a dependent under 17 who lived with the taxpayer for more than six months of the year and has a Social Security number — to a taxpayer. It’s refundable up to $1,400 per child.
You have to earn at least $2,500 to be eligible for the credit. The full credit is payable to married couples filing jointly with a modified adjusted gross income of up to $400,000 and all other tax filers up to $200,000.
A partial credit is allowed for earners above those limits: For each additional $1,000 of income, the credit is reduced by $50.
How does the new child tax credit work?
The child tax credit allows people to lower their tax bill if they have child dependents with a Social Security number. Normally you wouldn’t think about the credit until tax time when you claim it on your return.
The American Rescue Plan alters the rules around who is eligible and how much the credit pays and when, expanding it significantly in a push to reduce child poverty in the US. These new rules go into effect this year and end December 31, unless an extension or longer-term plan is put in place.
For 2021, the child tax credit increases to $3,600 per child under age 6 and $3,000 per child aged 6 to 17 (the 2020 credit edges out 17 year olds). It’s also fully refundable — half of the credit will be sent to qualifying taxpayers in the form of direct cash payments from July to December 2021, unless they opt out. The other half will be available when they file their tax return in 2022.
The income qualifications have also changed: There’s no longer an earnings floor, opening up the credit to those with very low or no income, and the modified adjusted gross income thresholds are lower. To get the full $3,000 or $3,600 credit, married joint filers need income of $150,000 or less and head-of-household filers need income of $112,500 or less.
For each $1,000 of income above those thresholds, the credit is incrementally reduced by $50 until it drops to $2,000. Married joint filers earning $170,000 and head-of-household filers earning $136,500 can then claim the $2,000 credit until they reach $400,000 or $200,000 in income, respectively. Beyond that, the same $50 reduction for each $1,000 of income applies until the credit reaches $0.
How does it work for divorced parents?
Generally, the custodial parent can claim a child as a dependent on their tax return. Sometimes parents will alternate years. Because the 2021 child tax credit is being split into advance payments and a regular tax credit, things can get complicated.
Initially, the advance payments — which the IRS will begin in July — will be based on 2020 tax returns, since that’s the most recent information available to the IRS. Ultimately though, the tax credit applies to 2021 tax liability. The parent claiming the child for 2021 is meant to get the entirety of the tax credit; it won’t be split between both parents.
The IRS is working to build an online portal that will allow tax filers who are eligible for the child tax credit to log in and update their tax information so that the parent claiming the child as a dependent for 2021 will get the payments. If the payments are made to the incorrect parent, they might have to repay the money when they file taxes next year.
What if I have a baby in 2021?
You won’t qualify for the advance child tax credit payments for the baby until the IRS gets the online portal up and running, which is slated for July.
The portal is expected to allow you to report a new dependent and get recurring payments if you qualify.
What if my child turns 17 in 2021?
They will qualify for the new child tax credit because 17 year olds in 2021 are eligible. That means you will be able to update the IRS through its forthcoming portal and get advance monthly payments for that child as long as you plan to claim them on your tax return when you file in 2022.
Can the money be garnished?
No, the advance payments cannot be used to offset unpaid federal taxes or overdue government debts.