In 2021, the Child Tax Credit (CTC) has been expanded and increased to help families with children. This tax credit is a refundable credit that will be paid out monthly from July through December. The American Rescue Plan Act of 2021 (ARPA) raised the maximum amount of the CTC, made it available for more families, and allowed part of it to be received in advance as monthly payments.
Eligibility
The new rules expand eligibility for the credit to more taxpayers who previously didn’t qualify because their income was too low or they didn’t have earned income. For tax year 2021, eligible families can receive up to $3,000 per child between ages six and seventeen and $3,600 per child under age six.
To claim the full credit for each qualifying dependent child in your family — including those born before 2021 — you must:
– Have a valid Social Security number for yourself (or your spouse if filing jointly), as well as all dependents claimed on your return
– File a tax return for tax year 2021 even if you are not required to file taxes
– Live in one of the fifty states or Washington D.C.
– Have a modified adjusted gross income below certain thresholds based on filing status:
* Single filers: less than $75,000
* Head of household filers: less than $112,500
* Joint filers: less than $150,000
For those above these thresholds but still within limits ($200k single/$400k married), there is still an opportunity to receive partial payments.
Monthly Payments
The IRS began sending out monthly payments starting in July 2021 based on information provided by taxpayers on their most recently filed tax returns or through an online portal set up specifically for this purpose. Eligible taxpayers do not need to take any action; payments will be automatically deposited into the bank account on file with the IRS or sent by mail as a paper check.
The monthly payments are based on half of your estimated total Child Tax Credit for 2021, and will be paid in advance from July through December. For example, if you have one child under age six, you would receive $300 per month ($3,600 divided by twelve months) from July through December. If you have two children between ages six and seventeen, you would receive $500 per month ($6,000 divided by twelve months).
However, these monthly payments are not guaranteed to continue beyond 2021 unless Congress passes legislation extending them.
Opting Out
If you prefer to opt out of receiving these monthly payments and instead claim the full credit when filing your taxes next year (in 2022), there is an online portal where eligible taxpayers can unenroll from receiving advance payments. This option may be useful for those who typically owe taxes at the end of the year or want to avoid overpaying their tax liability.
Claiming Additional Credits
In addition to the CTC, eligible families may also qualify for other credits such as:
– The Earned Income Tax Credit (EITC): this credit is designed to help low-to-moderate-income working individuals and couples offset some of their living expenses and encourage work.
– The Childcare Tax Credit: this credit helps offset costs paid toward childcare so that parents can work or look for work while caring for dependents.
Families who do not qualify for the expanded CTC may still be able to claim other existing tax credits that they were previously eligible for.
Conclusion
The expansion of Child Tax Credit has been a much-needed boost to families struggling with economic hardships during COVID-19 pandemic. Eligible families should take advantage of this opportunity by verifying their eligibility status and ensuring accurate information is held with IRS database so that they receive maximum benefits possible. Additionally, families should explore other potential credits and deductions available to them, such as the EITC and Childcare Tax Credit.