The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for 2021, but only for 2021.
The IRS website tells us a few things regarding this credit; firstly, it will increase the credit amount for many taxpayers. Secondly, the credit is fully refundable and includes children who turn seventeen in 2021, not just those under seventeen. Finally, taxpayers can receive part of their credit in 2021, before filing their 2021 income tax return.
The increased credit will be $3,000 per qualifying child between the ages of six and seventeen, and $3,600 per qualifying child under age six. Prior to the ARPA, the credit was $2,000 per qualifying child under the age of seventeen, at the end of the year.
Advance payments of this credit will be made to taxpayers starting in July 2021 and will likely be direct deposited into bank accounts on the 15th of the month, from July through December. Families without bank accounts on file with IRS could receive paper checks or debit cards in the mail. The total of these payments will be 50% of the eligible Child Tax Credit(s). Advance payments will be calculated based on information on taxpayers 2020 returns (or 2019, if their 2020 return has not yet been processed).
If you decide you do not want to receive the advance payment of this credit, then you need to indicate this using the IRS portal. The IRS portal is expected to launch on July 1, 2021. To opt out of the advance payments, you must login into the portal and manually select the opt out option.
These additional credit amounts, $1,000 or $1,600 per child, will be phased out for incomes over $75,000 ($150,000 MFJ and $112,500 HOH). Once the additional credit amount is phased out, the credit remains at $2,000 per qualifying child until that income phaseout begins at $200,000 ($400,000 MFJ).
If you are not sure if you are eligible for the expanded credit, be sure to consult with your tax preparer or other financial advisor.
Melanie Chapel, EA
Senior Accountant, Tax Preparer
Melanie has been part of the Advisors Management Group team since 2008. and has over 23 years of tax and accounting experience.