The American Rescue Plan Act (ARPA) signed into law in March expands the Child Tax Credit (CTC) for 2021 and also allows for advance payments starting in July.
With payments looming, many parents are beginning to think about and plan for the extra money they will soon see in their bank accounts. Below we dig into the details including what families can expect and what they should do to prepare.
Details of the Child Tax Credit
When filing 2020 tax returns, eligible parents could claim a $2,000 tax credit for each child up to age 16. However, the ARPA increased the existing tax credit for 2021 from $2,000 up to $3,000 for children between the ages of 6 and 17, and up to $3,600 for children under the age of 6. The maximum benefit is available to taxpayers with adjusted gross incomes of up to $75,000 for single filers, up to $112,500 for heads of households, and up to $150,000 for married taxpayers filing jointly and widow/widowers. The benefits are reduced by five cents for every dollar above these income levels. The credit is estimated based on the 2020 tax return or the 2019 return if the 2020 return has not been filed and processed yet.
In previous years, child tax credits were included on a taxpayer’s return and reduced a family’s tax bill when filing. But, to provide assistance due to the pandemic, the ARPA allows for advance payments of the child tax credits in 2021. Payments will be made monthly from July through December for eligible taxpayers up to 50% of the estimated credit. The remaining credit will be taken on the taxpayer’s 2021 return.
What Families Can Expect from the Child Tax Credit
Eligible families can expect a benefit of $250 per month for each qualifying dependent child between the ages of 6 and 17 ($3,000 yearly tax credit / 12) and $300 for each child under the age of 6 ($3,600 yearly tax credit / 12).
The first payment is scheduled for July 15 with subsequent payments also being paid on the 15th through the end of 2021. Payments will be made directly to bank accounts for taxpayers set up to receive direct deposit. All others will be mailed paper checks or debit cards. Families will receive the tax credit for January through June 2021 when they file their returns in 2022.
What Families Need to Do to Receive the Child Tax Credit
Most families don’t need to do anything; the IRS will directly deposit or mail the tax credit to qualifying taxpayers. But non-filers may need to take action. Families who made too little to file a 2020 tax return should file now if they are eligible and want to receive the advanced monthly tax credit.
In addition, families can choose not to receive advanced monthly payments and claim the entire credit on their 2021 tax return. As of now, the IRS has not provided specific guidance on how to decline the monthly payment, but updates are expected before the first payment on July 15.
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