Recent Changes to the Child Tax Credit
The Child Tax Credit will change this year as part of the American Rescue Plan Act passed by Congress in March. What does that mean for parents? We have some details on how this will affect families for tax year 2021.
This one-time expansion increases the amount families may receive. Eligible families will automatically begin to receive advanced payments of this tax credit.
How much is the increase?
Previously, parents who qualified received a $2,000 credit for each child. In 2021, eligible parents will receive:
- $3,600 for children six years of age or under
- $3,000 for children ages seven to 17
Children who turn 17 this year will still qualify, unlike in past years.
The increased amounts are reduced (phased out), for incomes 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.
When will I receive the credit?
Parents won't have to wait until they file their 2021 taxes to receive these funds. Advance payments will be made by the IRS regularly from July through December 2021. First payments are expected on July 15.
The recurring payments are expected to be made on the 15th of each month, unless the 15th is a weekend or holiday.
How will I get the money?
Payments will be made by direct deposit, paper checks, or debit cards.
You can add, update, or change banking information using the Child Tax Credit Update Portal:
What do I have to do to claim it?
Those eligible should file a 2020 tax return if they haven't already. Eligible parents who have filed their 2020 return don't need to do anything right now.
What if I don't have earned income or owe taxes?
The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they do not have earned income or do not owe any income taxes.
Those who aren’t required to file a return can use the Non-filer Sign Up tool to claim their credit.
How will this affect my 2021 tax refund?
Receiving the advanced payments for this credit will reduce credit available on the taxpayers 2021 tax return. Taxpayers will need to report the total advanced CTC received during 2021. This may reduce the amount of the 2021 refund compared with 2020.
The advance payments received from July to December will be reconciled with the actual credit allowed. Any remaining credits will be refunded on the return. If you receive more than allowed, those credits must be repaid, but repayments will be reduced by a safe harbor of $2,000 per child for those within the income threshold.
What if I don't want to receive advanced payments?
If you would prefer not to get advanced payments, you can unenroll using the Child Tax Credit Update portal. If you’re not sure whether or not advanced payments would be right for you, check out the decision tree released by America Saves below.
Can I update the number of children I can claim?
Yes, although the process to do this hasn't been released by the IRS, it's expected that they will provide an opportunity to update the number of qualifying children.
Still have questions?
For complete information about the 2021 changes to the Child Tax Credit, check out the IRS website.
Still need to file a 2020 tax return?
The tax professionals at OUCU Financial Services provide fast, accurate, and affordable tax preparation services. Our staff includes Certified Public Accountants and Enrolled Agents who can help make filing taxes less taxing. Find out more about tax preparation services or contact (740) 597-2820 or firstname.lastname@example.org.
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