The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for the tax year 2021. Payments for the increased child tax credit will begin on July 15th.
Child Tax Credit Increase
For the tax year 2021 only, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. The credit will include children who turn age 17 in 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year. Taxpayers must have a primary home in the United States for more than half the year.
The increased CTC is phased out for taxpayers with income over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers. The credit is fully refundable. Taxpayers may receive the credit even if they do not have earned income or owe income taxes.
Advanced Payments
Taxpayers may receive part of their credit in 2021 in advance of filing their 2021 tax return. The IRS will begin issuing advanced payments between July and December. Eligible taxpayers do not need to take any action now other than to file their 2020 tax returns.
The total of the advance payments will be up to 50 percent of the CTC. The IRS will estimate advance payments from information included in 2020 tax returns or 2019 tax returns if 2020 returns are not filed and processed yet. Taxpayers are urged to file their 2020 tax returns as soon as possible to ensure they are eligible for the appropriate amount of the CTC. Filing electronically with direct deposit may speed refunds and future advance CTC payments.
Eligible taxpayers who do not want to receive an advance payment of the 2021 CTC will have the opportunity to decline to receive advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status, or the number of qualifying children.
Update: The IRS recently opened up an online site, the Child Tax Credit Non-Filer Sign-up Tool, for taxpayers to report qualifying children. For more information, visit the IRS website.
Author, Beeta Lecha, CPA
Principal
Spiegel Accountancy
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.