In March 2021, Congress passed the $1.9 trillion American Rescue Plan Act of 2021 (ARPA), which provided the third round of stimulus checks to Americans. It also provided funding for a host of other items in the private and government sectors. One of those items was the modification of the Child Tax Credit. We'll discuss what that modification is and how it may affect you.
What Is The New Child Tax Credit?
The new Child Tax Credit, as modified by ARPA, temporarily extends the Child Tax Credit from $2,000 up to $3,600 for eligible children under six and $3,000 for children six to 17. It also advances half of the amount to families from July 2021 through the end of the year. Rather than waiting until next tax season, families can receive some of that credit now. It was designed to offer extra relief for families during this pandemic.
The IRS recently announced what the payment plan for the Child Tax Credit would be. Families will receive their first payment on July 15, 2021. Below is the payment schedule:
July 15, August 13, September 15, October 15, November 15, December 15
The IRS began mailing millions of letters to eligible families, notifying them of the upcoming payments. The first letter explains that the family is eligible for the credit. It explicates that no further action is required if the family wishes to receive the money. It also says that a second letter will be mailed out with more personalized information. The IRS is using 2020 tax filings for their determinations, so if you have not filed your 2020 taxes by now, do so as soon as possible.
If you are not required to file, the IRS has a Child Tax Credit Non-filer Sign-up Tool that you can use to get the credit.
How Much Will You Receive?
The amount families will receive will vary based on the adjusted gross income (AGI), but we will break down the amounts so you can have a better idea of what to expect. Just to reiterate, families will receive half of the credit between July and December 2021, and the rest when families file their taxes in 2022.
Here is how it will work:
The amounts below apply to you IF:
- You are a single filer and make $75,000 annually or less
- You are a head of household and you make $112,500 or less
- You are married filing jointly or are a qualifying widow/widower and make $150,00 or less
The Child Tax Credit has been temporarily increased $2,000 to $3,600. There is discussion that it could be codified permanently, but for now it's just for 2021. ARPA enables the IRS to give half of that to families now, in equal monthly payments.
If you have a child that is 0 to 5 years of age, your tax credit is $3,600. Half of $3,600 is $1,800. Split between six months (July through December), that means you will receive $300 each month on the designated dates above, for each eligible child.
If your child is between six and 17, your credit is $3,000. Half of $3,000 is $1,500. Split between six months, you will receive $250 per month as indicated above.
Now, if your AGI exceeds the limits above, you may still receive some of the credit. For every $1,000 you make over the threshold, the credit is reduced by $50.
For example, let us assume you are a single filer with an AGI of $80,000. That's $5,000 (5 x $1,000) above the threshold for single filers. That means you would receive a $250 deduction (5 x $50). So if you have a child who is 4, your total tax credit would be $3,350 ($3,600-$250). Meaning, your payments starting in July would be $279 instead of the full $300.
IRS Child Tax Credit Portal
If you still have questions or you have a special circumstance, there is good news. The IRS developed an Advance Child Tax Credit portal for 2021. The IRS will release tools on this portal that help individuals and families navigate this complex season with ease.
One of the tools will be an interactive Child Tax Credit eligibility tool to help people determine if they are eligible, if they didn't receive a letter. The other tool is called the Update Portal, which will enable people to opt out of the monthly payments. Instead, the credit will be received in full when they file their 2021 taxes.
If you have other questions about the Advance Child Tax Credit Payments, the IRS has a FAQ page that may be helpful.