Here's What You Need to Know

The American Rescue Plan Act of 2021, made changes to the Child Tax Credit for 2021. The Child Tax Credit (CTC) is a credit for individuals who claim a child as a dependent on their federal tax return as long as the child meets certain conditions.

The Child Tax Credit (CTC) is a credit for individuals who claim a child as a dependent on their federal tax return as long as the child meets certain conditions.

What Are the Changes for Tax Year 2021?

The maximum CTC increased to $3600 per child under the age of 6 and to $3000 per child between the ages of 6 and 17. The maximum CTC for 2020 was $2000 and the age limit was 16.

What Are Advance Payments?

Advance CTC payments are early payments from the IRS of 50 percent of the estimated amount of the CTC that a taxpayer may claim on their 2021 tax return. The payments will be made monthly from July 15 through December 15. They will be up to 50 percent of the CTC. Thus an eligible family could receive up to $300 per month for each child under 6 and up to $250 per month for each child between 6 and 17.

Who Is a Qualifying Child?

An individual who does not turn 18 before January 1, 2022 and satisfies the following conditions.

• Is a taxpayer's son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendent of any of them (for example, a grandchild, niece, or nephew).

• Does not provide more than one-half of his or her own support during 2021.

• Lives with the taxpayer for more than one-half of tax year 2021.

• Is properly claimed as the taxpayer's dependent.

• Does not file a joint return with their spouse for tax year 2021 or files only to claim a refund of withheld income tax or estimated tax paid.

• Is a U.S. citizen, U.S. national, or U.S. resident alien.

Are There Income Limits?

Yes. The CTC can be reduced to $2000 per child if your modified adjusted gross income (AGI) in 2021 exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower.

• $112,500 if filing as head of household.

• $75,000 if you are a single filer or are married and filing a separate return.

The CTC is reduced by $50 for each $1000 your modified AGI exceeds the income threshold.

In addition, the CTC will be reduced below $2000 per child if your modified AGI exceeds:

• $400,000 if married and filing a joint return.

• $200,000 for all other filing statuses.

The CTC is reduced by $50 for each $1000 your modified AGI exceeds the income threshold.

What Do You Need to Do to Receive Them?

Nothing as long as you've filed your 2020 tax return. You can use this tool to verify if you are enrolled.

If you aren't required to file a tax return and haven't provided the IRS your information, you'll need to sign up using this tool.

What Notifications Will You Receive?

You should have received a letter from the IRS in June informing you of the amount of the CTC monthly payments.

In January 2022, the IRS will send you a letter indicating the total amount of advance CTC payments sent to you. You may need this information when you file your 2021 tax return.

Do You Have to Receive the Payments?

No. You will receive the July 15 payment but you can opt out of the rest using this IRS tool.

How Will You Receive the Payments?

If the IRS has your banking information, the payment will be sent as a direct deposit. Otherwise the payment will be sent by mail.

Are the Advance CTC Payments Taxable?

No. The Advance CTC payments are not income and will not be reported as income on your 2021 tax return.