Child Tax Credit (CTC) 2021: $3,000!
Critical Update March 8, 2022: IRS revises Child Tax Credit guidelines
The IRS has revised its 2021 Child Tax Credit and Advance Child Tax Credit frequently asked questions (FAQs). These changes are intended to help eligible taxpayers claim the credit when they prepare and file their 2021 tax returns.
Please note that Publication 972, the document published by the IRS that provides guidance on claiming the Child Tax Credit, is now obsolete. Instead, Schedule 8812 (Form 1040) is now the sole reference for claiming, calculating, and reporting the Child Tax Credit.
The IRS has merged the applicable information and worksheets from the 2020 revision of Publication 972 and the 2020 Instructions for Forms 1040 and 1040-SR into the 2021 Instructions for Schedule 8812.
What's new: Schedule 8812 (Form 1040) is now used to calculate child tax credits, to report advance child tax credit payments received in 2021, and to determine any tax owed if excess advance child tax credit payments were received during 2021.
Update June 24: IRS releases portal for Child Tax Credit Payments
As a reminder, the IRS is issuing advanced Child Tax Credit payments as part of the American Rescue Plan.
Advanced payments are beginning in July. But, if you do not wish to receive advanced payments now and prefer to get them when you file your 2021 return, the IRS has unveiled a portal to opt out of the advanced payments. In addition, the IRS has a tool for non-filers.
Who qualifies for child tax credits payments
To qualify for advance Child Tax Credit payments, you (and if you filed jointly, your spouse, as well) must:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
- Provided the IRS your information in 2020 to receive the Economic Impact Payment using the Non-Filers tool and
- A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
- Made less than certain income limits.
The IRS will use the information you provided earlier to determine if you qualify and automatically enroll you for advance payments. You do not need to take any additional action to get advance payments.
Update Jun 11: The IRS released an FAQ to assist families in claiming credits under the American Rescue Plan
Here’s some news that American families will truly appreciate during these dire times: the Internal Revenue Service plans to start sending monthly payments from the new $3,000 child tax credit (CTC) this July.
The new and expanded child tax credit was included in the $1.9 trillion American Rescue Plan that was signed into law by U.S. President Joe Biden in March. Under this law, families would get a $3,000 annual benefit per child ages 6 to 17 and $3,600 per child under the age of 6 for the 2021 tax year.
This development is a welcome one considering that IRS Commissioner Charles Rettig previously mentioned that they weren’t sure they would start sending payments to families this July, and that the checks might not even be on a monthly basis at first. The reason for this was because the agency was overcome by the bustle of extended tax filing season, and thus, had less time and resources to launch a portal for the child tax credit.
However, during a hearing with the Senate Finance Committee, Rettig said they would start on schedule.
Child Tax Credit Eligibility
The full credit is accessible to people who have children and adjusted gross income of less than $75,000, or $150,000 for a married couple filing jointly. The extra benefit will phase out for taxpayers who make more money, and cease for individuals earning $95,000 and married couples earning $170,000 filing jointly.
Taxpayers that make more than that will still be qualified for the regular child tax credit, which is $2,000 per child under age 17 for families making less than $200,000 annually, or $400,000 for married couples.
The expanded credit is slated to be distributed to families on a monthly basis starting in July and would keep on going through December 2021. The monthly amounts typically will be $250 for older children and $300 for children under the age of six. Families will claim the remaining half of the credit when they file their 2021 income tax return in 2022.
There is no limit on the number of children in a family that can benefit from the credit, as long as they meet the eligibility requirements around age and income.
To get the credit, families with children must file a 2020 tax return. Failure to do so would mean the agency will not have the data it needs to deliver the credit.
Fine Print & Reconciliation
Upon which information will the IRS base their adjusted gross income off of? The IRS will base the advance payment on information they have available. The exact date of when the IRS makes that dinstinction is not known. If the IRS processed the 2020 return, they will base advanced payments on 2020 income. If 2020 is not yet filed, the IRS will use information from 2019.
The IRS is urging people with children to file their 2020 tax returns as soon as possible to make sure they're eligible for the appropriate amount of the CTC as well as any other tax credits they're eligible for. Filing electronically with direct deposit also can speed refunds and future advance CTC payments.
- Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.
Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced by the IRS soon.
Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year.
The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).
The IRS has not yet announced if the advanced credit will be reconciled like the APTC (Advanced premium tax credit) or like the stimulus payment. The main difference between these reconciliations is if the taxpayer will have to pay back excess advances if 2021 income exceeds threshold. Or, they will receive the difference if the advances were too little based on 2021 income.