Major Changes to the Child Tax Credit for 2021

The COVID-19-inspired American Rescue Plan Act made several changes to the federal child tax credit for 2021, and only for 2021.

Here we outline a few of the key changes that taxpayers with children under age 18 should be aware of.

The first change: the credit amount was increased. For Married Filing Joint filers with income under $150,000 in 2021, the credit increased to $3,600 per qualifying dependent under 6 years old and to $3,000 per qualifying dependent age 6 to 17. For MFJ taxpayers with income between $150,000 and $400,000, the credit steps down to $2,000 per qualifying child. MFJ and other filers with incomes of $400,000 and up are completely phased out, there is no applicable child tax credit.

Another change for 2021 only is the credit is fully refundable – so for 2021, when the credit amount is more than one’s tax liability owed the entire difference will be paid back as a refund. In 2020 only $1,400 per child was refundable.

But the biggest change for the child tax credit is that there will be advanced payments starting July 15, 2021. The IRS will use the dependent information from a taxpayer’s 2020 or 2019 return to determine eligibility and will begin sending monthly amounts through the end of 2021. Taxpayers do not need to do anything to start receiving the advance payments. The IRS will automatically start sending the funds based on those prior returns. For qualifying taxpayers, the remainder of the credit will be claimed when filing their 2021 tax returns.

The IRS will also be sending out letters that estimate what taxpayers should expect in child tax credits based on prior tax return information. We strongly recommend taxpayers hold on to this letter to compare the expected amount versus what was received – and save it for next tax season to reconcile the child tax credit on their federal tax returns. Your tax preparer will thank you next spring if you can track what you received in advanced payments.

So, what do you do if you have a change in your dependent situation for 2021?

The IRS is creating an online portal where taxpayers can update their number of qualifying dependents, check eligibility, and opt out from receiving advance payments. Currently, taxpayers can use this portal to unenroll from the payments, and by fall they should be able to update their family status, mailing and bank account information. This link will take you to the IRS portal.

How can non-filers claim the advanced credit?

For taxpayers who have not filed a 2020 return and don’t plan to file, the IRS created an online tool to claim or apply for the credit.

Who may want to opt out of receiving the payments in advance?

Taxpayers who know their situation is changing, think their income may be over the threshold in 2021, and/or do not want to worry about repaying credit “overpayments” with their tax returns. That’s right, taxpayers who receive too much in credit payments will have to repay that “over” amount with their 2021 tax returns. Significantly, taxpayers who qualify but choose to not receive advance credit funds can still claim the credit when filing their 2021 tax returns; as done in previous years.

This last year brought many small and large changes to the federal tax laws, including these short-term changes to the child tax credit. Your professional tax team at JCCS is here to help answer questions and help you navigate how these changes impact your situation.

* This article is not a complete listing of all the details related to this tax topic and you should contact your CPA for a more detailed discussion regarding these items and how they may apply to your specific situation.

Photo: Favian Centeno,