With the introduction of the American Rescue Plan back in March, the Child Tax Credit underwent a couple temporary changes for tax year 2021. One of the main adjustments included allowing families to receive part of the Child Tax Credit as monthly payments rather than waiting to get all of the money as a refund when they file their tax returns. This is considered an advance of the credit. The premise behind this change is to continue to help families who experienced a financial hit during the COVID-19 pandemic.
On June 7, the IRS officially announced the payment dates, with the first round of payments starting on July 15, 2021. The payment timeline is as follows:
- July 15, 2021
- August 13, 2021
- September 15, 2021
- October 15, 2021
- November 15, 2021
- December 15, 2021
Check Your Mailbox
The IRS has started sending letters to the American families who may qualify to receive monthly Child Tax Credit payments. If you believe you may qualify, be on the lookout for two different letters.
The first letter will be an eligibility notification. The second letter will be more personalized and list an estimate of the payment amount you can expect to receive each month based on the information the IRS has from your last filed tax return.
If you have not filed your 2020 tax return, the IRS urges you to file as soon as possible so they have the most current information to accurately process your payment. The IRS will otherwise use your 2019 return to calculate what you are owed.
Individuals who used the IRS’ non-filers tool in 2020 are also eligible for the credit and will receive the letter notifications as applicable.
How much will your payment be?
This new monthly payment structure is designed to pay eligible families half of the credit amount for which they qualify. Families will receive the second half of the credit as part of their tax refund when they file their 2021 tax return. The maximum amount families can receive per month is $300 for each child age five and under and $250 for each child between the ages of six and 17.
Let’s dive into how that works.
The value of the credit significantly increased for 2021 with the passing of the American Rescue Plan. That said, it’s slightly complicated to determine how much you may qualify to receive. Here are the basics:
- Eligible families can get up to $3,600 per qualifying child who is under the age of six and up to $3,000 per qualifying child between the ages of six and 17. Prior to 2021, the credit was worth up to $2,000 per qualifying child and 17-year-olds were not included.
- The amount you receive is based on your adjusted gross income (AGI). You will get the maximum value of the Child Tax Credit if your AGI is:
- $75,000 or less for single filers,
- $112,500 or less for heads of household, and
- $150,000 or less for married couples filing a joint return and qualified widows and widowers
You can find your AGI on line 11 of your 2020 Form 1040 or 1040-SR.
If your AGI is higher than those limits, you could still receive a portion of the tax credit. In that event, the new portion of the credit that’s been temporarily added to the original $2,000 credit (either $1,000 or $1,600 per child) is reduced by $50 for every extra $1,000 you earn above the income thresholds. For example, if you file a joint 2021 return, have an AGI of $160,000 and two children five and under, your full Child Tax Credit amount will likely be $6,700.
The IRS’ New Advance Child Tax Credit Portal
The IRS has created an Advance Child Tax Credit 2021 portal that houses information regarding the credit and corresponding payments. Additionally, this portal will be home to two different tools related to the Child Tax Credit.
The first tool is an interactive Child Tax Credit eligibility tool which will help families find out if they qualify for payments. The second tool is called the Child Tax Credit Update Portal. This will initially enable anyone who is eligible for advance payments to opt out of the program and instead receive their full credit as part of their tax refund.
Later in the year, the Child Tax Credit Update Portal will also allow families to check on their payment status as well as update their tax information throughout the year to ensure their payments are calculated as accurately as possible. For instance, if you have a baby or adopt a child in 2021, you can update the IRS with that information using the tool and possibly receive additional credit money for the new addition to your family as part of your monthly payments.
Both tools will be available in the coming weeks.
File Your 2020 Tax Return for Accurate Payments
If you believe you are eligible for the 2021 Child Tax Credit, the IRS urges you to file your 2020 return as soon as possible if you haven’t already done so. If you have filed and qualify for the credit, there are no further steps you need to take to get your money.
Filing your 2020 return as soon as possible will provide the IRS with the most accurate information about your tax situation. That includes your dependent information as well as current bank account details. Monthly payments will be issued via direct deposit or paper check.
Child Tax Credit Monthly Payment FAQs
How much are the monthly payments?
If you qualify, the monthly payment you receive is dependent upon the number of qualifying children you have as well as your AGI. There are income qualifications to receive the full credit. Families who qualify can receive up to $300 for each qualifying child age five and under per month and $250 for each qualifying child ages six to 17. The IRS will also make a one-time payment of $500 for dependents age 18 or full-time college students up through age 24.
Additional detail on the calculation of the credit is explained above.
How does the IRS know how much to send me?
The IRS will base your eligibility for the credit as well as calculate your credit amount from your last filed tax return. That is why the IRS urges families to file their 2020 tax returns as soon as possible to ensure they have the right information to calculate the payments as accurately as possible.
What if my address or bank account information has changed from what the IRS has on file?
The best way to update your bank account information with the IRS is to file your 2020 tax return. The agency will send your monthly payments to the bank account that’s submitted with your return.
As the IRS issues more guidance, we will update this page with any new options for updating your banking information. Continue to check back for the latest information.
Can I receive the credit all at once, or do I have to receive it monthly?
When available, the IRS will allow families to opt out of the monthly payments using the Child Tax Credit Update tool. If a family opts out, they will receive any remaining credit amount as a lump sum in their 2021 tax refund.
Because the monthly payments are designed to pay half of the credit amount in advance, families who do not opt out will receive the remaining half as part of their 2021 tax refund.
If I have a baby or adopt a child in 2021, can I get money for them?
Yes! Any qualifying children you add to your family in 2021 may make you eligible for additional money. You can use the Child Tax Credit Update tool to submit your new dependent’s information to the IRS and update your payment amount.
If you do not update your information with the IRS during 2021, you can still claim the credit for that qualifying child when you file your 2021 tax return. You’ll then receive any credit money you qualify for as part of your tax refund.
How do the payments work if I have shared custody of my child/ren?
We are waiting on guidance from the IRS for this scenario. Currently, we believe the payments will go to the parent who last claimed the child/ren as dependents on their 2020 tax return. We will update this page as we learn more.
Will I receive these monthly payments every year?
Currently, the monthly payments are only scheduled to occur in 2021. They are an advance of the Child Tax Credit that qualifying families will claim on their 2021 tax returns. The increased value is also only valid for tax year 2021. In 2022, the value of the credit will reduce back to $2,000 per qualifying child under the age of 17.
We will provide updates to this page as new information becomes available.
How did the Child Tax Credit change from 2020?
As many families know, the Child Tax Credit is not new. The American Rescue Plan revamped it for 2021, however.
In 2020, the maximum annual credit was $2,000 per child under age 17. In 2021, the maximum annual credit increased to $3,000 per child age six to 17 or $3,600 per child age five or younger.
Another change is in the refund-ability of the credit.
Quick tax lesson: Tax credits reduce your tax liability on a dollar-for-dollar basis, meaning if you owe $1,000 in taxes and claim a credit worth $1,000, your tax liability is now $0. Another example – if you owe $1,500 in taxes and claim a $1,000 tax credit, your tax liability is now $500. Tax credits are also refundable or non-refundable. If refundable, that means you get any remaining money that doesn’t go toward paying down your tax liability as part of a tax refund. If not refundable, you only get to take advantage of the credit to pay down your tax liability. Once your tax bill is at $0, you can’t get anything more from the credit. For instance, if you owe $500 in taxes and claim a $1,000 non-refundable credit, $500 of that credit will go toward paying down your tax bill, but you will not receive the remaining $500 as a refund. The opposite is true for a refundable tax credit.
In 2020, the Child Tax Credit was partially refundable. If your tax liability was $0, and you claimed the credit, you could get $1,400 of it as a tax refund. In 2021, all of the Child Tax Credit is refundable. Therefore, you’ll get the full amount you qualify for as a refund if your tax liability is $0.
Additionally, in prior years a filer needed at least $2,500 in earned income to claim the credit. In tax year 2021, there is no longer that earned income limitation. You do not need any earned income to receive the Child Tax Credit. Anyone eligible to receive the credit, however, will be required to file a 2021 tax return next year.