More families will now be eligible for the Child Tax Credit.

The recently passed third stimulus relief package, known as the American Rescue Plan, expanded the Child Tax Credit. Beginning with your tax year 2021 taxes (the ones filed in 2022) the age limit and the amount of the credit will be increased and it will become fully refundable – meaning you’ll be eligible for the benefits even if you don’t owe taxes.

How much will families with children get with the new Child Tax Credit?

Starting in 2021 (the taxes you file in 2022) the plan increases the Child Tax Credit from $2,000 up to:

  • $3,600 for each qualifying child under 6
  • $3,000 for each qualifying child age 6 to 17

This is the first time that families with children age 17 will be eligible for this credit.

Eligible families may receive an advance payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. Instead of getting this credit as part of your refund in 2022, these payments are sent in advance and represent a portion of the tax year 2021 Child Tax Credit.

When Will the Advance 2021 Child Tax Credit Payments Start?

The IRS and U.S. The Department of Treasury announced the first monthly payment of the newly advanced Child Tax Credit will be disbursed to eligible families on July 15, 2021 and will continue on the 15th of every month following unless the 15th falls on a weekend or holiday. These payments will be sent out through direct deposit, paper check, or debit cards.

Who is eligible to get the new expanded Child Tax Credit?

You may be eligible for the full amount of the credit if you have an eligible child and meet one of the following qualifications:

  • Parents with a single filing status or married filing separately making up to $75,000 a year,
  • Parents filing married filing jointly or a parent filing as a surviving spouse, earning up to $150,000 a year,
  • Parents filing as head of household earning up to $112,500

If you have income above these amounts, the credit will be reduced by $50 for each $1,000 that your Modified Adjusted Gross Income (MAGI) exceeds these thresholds.

For example, a couple using the filing status married filing jointly with a child between the age of 6 to 17 and earning $160,000 would still receive the CTC credit but $500 ($10,000/$1000 x $50 = $500) would be phased out.

Families who are not eligible for the expanded $3,000 or $3,600 credit because they earn higher than the modified adjusted gross income mentioned above may still be able to claim the Child Tax Credit up to $2,000 under the existing tax provision for each qualifying child under 17. This credit amount is still available to individuals earning up to $200,000 or married couples filing jointly earning up to $400,000.

**Note, Adjusted Gross Income (AGI) is your gross income like wages, salaries, or interest minus adjustments for eligible deductions like student loan interest or your IRA deduction and can be found on line 11 of your 2020 Form 1040. Modified Adjusted Gross Income (MAGI) is your adjusted gross income with certain deductions like student loan interest added back in. Some deductions are rare so it is possible for your AGI and MAGI to be the same.

How do I claim the new expanded Child Tax Credit?

Although this credit is for your tax year 2021 taxes filed in 2022, the IRS will be paying the credit in advance. The U.S. Department of Treasury announced the first monthly advance payment will be made beginning on July 15, 2021 and on the 15th of the month of each month thereafter unless the 15th falls on a weekend or holiday.

The IRS states that most taxpayers do not need to do anything to claim these advance credit payments. The IRS will likely determine eligibility based on your most recent processed tax filing. If you have not filed your 2020 taxes yet you are encouraged to file them so the IRS has the most up to date information to determine eligibility.

Will I be required to pay this credit back?

The payments being disbursed beginning July 15, 2021 are advance payments of your 2021 Child Tax Credit (CTC) under the American Rescue Plan. If you receive an advance of the 2021 Child Tax Credit, the advanced monthly payments will be reconciled on your 2021 tax year return (the taxes you file in 2022). This means that if your actual 2021 income and dependent information is different from the information the IRS used to determine eligibility for the advanced payments, you may see more or less of the total 2021 Child Tax Credit and in some cases will have to payback any overpayment based on your actual 2021 information when you file your taxes.

In addition, since eligible families will receive advanced payments of the credit before filing their taxes next year, your Tax refund next year will not include the full amount of the credit. Don’t worry about knowing how to reconcile your advanced Child Tax Credit. TurboTax will be up to date with the latest tax laws and will guide you through reconciling the advanced Child Tax Credit.

What about families abroad?

The American Rescue Plans extends the Child Tax Credit to U.S. territories. This allows families in Puerto Rico, including those with fewer than three children, to benefit from the credit by filing directly with the IRS.

We’ve Got You Covered

TurboTax has you covered with the most up-to-date information regarding new legislation and tax filing changes and announcements in response to Coronavirus (COVID-19). TurboTax has proactive guidance related to the events that occurred last year and will ask you simple questions about you and give you the tax deductions and credits you’re eligible for.

If you have questions when you sit down to do your taxes, you can connect live via one-way video to aTurboTax Live tax expert with an average 12 years experience to get your tax questions answered. TurboTax Live tax experts can also review, sign, and file your tax return or new this year, you can fully hand your taxes over to them from the comfort of your home.  TurboTax Live tax experts are available year-round in English and Spanish.

You can find the latest information on the tax changes and announcements in response to COVID-19, here.