Families with children under age 18 may see additional money coming into the household as new child tax credit changes go into effect. More than 36 million American families who, based on tax returns filed with the Internal Revenue Service, may be eligible to receive monthly Child Tax Credit payments starting in July.
The expanded and newly-advanceable Child Tax Credit was authorized by the American Rescue Plan Act, enacted in March. Most families do not need to take any action to get their payment. Normally, the IRS will calculate the payment amount based on the 2020 tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS will instead determine the payment amount using the 2019 return.
Eligible families will begin receiving advance payments, either by direct deposit or check. The payment will be up to $300 per month for each qualifying child under age 6 and up to $250 per month for each qualifying child ages 6 to 17.The IRS will issue advance Child Tax Credit payments on:
Child Tax Credit Changes
The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for qualifying children under the age of 6 and to $3,000 per child for qualifying children between ages 6 and 17. Before 2021, the credit was worth up to $2,000 per eligible child, and 17 year-olds were not considered as qualifying children for the credit.
The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:
$75,000 or less for singles
$112,500 or less for heads of household
$150,000 or less for married couples filing a joint return and qualified widows and widowers
For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every extra $1,000 in modified AGI.
In addition, the entire credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.
families should file tax returns soon
The IRS urges individuals and families who haven’t yet filed their 2020 return – or 2019 return – to do so as soon as possible so they can receive any advance payment they’re eligible for.
Filing soon will also ensure that the IRS has their most current banking information, as well as key details about qualifying children. This includes people who don’t normally file a tax return, such as families experiencing homelessness, the rural poor, and other underserved groups.
For most people, the fastest and easiest way to file a return is by using the Free File system, available only on IRS.gov.
Persons may want to unenroll from receiving advance Child Tax Credit payments for several reasons, including if they expect the amount of tax they owe to be greater than their expected refund when they file their 2021 tax return.
The payments are an advance of the Child Tax Credit that families would normally get when filing their 2021 tax return.
Because these credits are paid in advance, every dollar received will reduce the amount of Child Tax Credit they can claim on the 2021 tax return. This means that by accepting advance child tax credit payments, the amount of their refund may be reduced or the amount of tax they owe may increase.
Persons may avoid owing tax to the IRS if they unenroll and claim the entire credit when they file their 2021 tax return. For more information about how to unenroll at IRS.gov.