Changes to the Child Tax Credits in 2021

Category: Compliance Updates

Beginning next month, the advance payments of the enhanced child tax credit (CTC) are set to start. However, there are changes that have been made and things to keep in mind.

According to financial experts, it’s important for all eligible parents to look over their finances before spending the payments, because some parents may owe at tax time next year.1

What’s different about the new child tax credit payments?

There are six key changes to the new CTC according to the American Rescue Plan.2

  1. Increases the tax credit amount. $3,000 per child and $3,600 for children under the age of 6.
  2. Makes the credit fully refundable. If eligible, you get the full CTC refund, even if you don’t owe taxes.
  3. Removes the minimum income requirement. You can still claim CTC even if you have zero income.
  4. Raises the qualifying age. Children aged 17 and under qualify for the credit.
  5. Provides advance payments. If you already qualify for the current CTC based on your 2020 tax return, you can begin receiving a part of the expanded credit during 2021. You don’t have to wait to file your 2021 tax return. The IRS will send monthly payments for half your new credit between the months of July and December 2021.
  6. Lowers the phase out rate. The CTC amount will begin to decrease starting at $75,000 ($112,500 for heads of households and $150,000 for married couples).

Additionally, the IRS is set to send out checks to eligible households on the following dates in 2021:

  • July 15
  • Aug. 13
  • Sept. 15
  • Oct. 15
  • Nov. 15
  • Dec. 15

Who may be affected by the changes?

Many families could be affected by these changes. For example, if your spouse went back to work after having been unemployed for most or all of 2020, or if you switched to a higher-paying job, you could potentially be in a higher tax bracket in 2021.1

Additionally, if you sold property for a gain or earned more income in 2021, you could potentially have to pay the credit back when you file your 2021 tax return.1

Steps to consider taking

Begin by taking a look at your 2020 tax return to see how your finances hold up, in order to avoid running into issues.

The IRS has released the Advanced CTC Eligibility Portal which provides information about the credit and helps families see whether they qualify for the payments.3 The CTC Update Portal now lets you opt out of receiving the monthly CTC payments if you would like to wait to receive the credit until you file your tax return next year.

This blog is up to date as of July 2021 and has not been updated for changes in the law, administration or current events.

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