This article was last updated on March 12
In response to providing support to families during the COVID pandemic, President Biden and the Democrats passed legislation via the American Rescue Plan (ARP) Stimulus package to expand the current Child Tax Credit (CTC) to $3,000 annually per child (or $250 monthly) between the ages of 6 and 17, while increasing it to $3,600 for children under the age of 6 (infants), equivalent to $300 monthly. The IRS will make these payments on a monthly basis versus eligible recipients having to claim the credit via their tax return on an annual basis.
Currently the CTC is $2,000 per eligible dependent child under the age of 17. The credit begins to phase out for those whose incomes (AGI) is above $200,000 (singles)/$400,000 (joint return). Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these people must also have earned income of at least $2,500 to get a refund. The Biden expansion will raise the maximum benefit by 80% per child for most families and extends it to millions of families whose earnings are too low to fully qualify under existing law. Currently, a quarter of children get a partial benefit, and the poorest 10% get nothing.
More than 93 percent of children — 69 million — would receive benefits under the expansion of the Child Tax Credit Payments in 2021. Unlike the current CTC which is claimed via tax returns annually, as a tax reduction to families with income tax liability or a refund check, the expanded CTC stimulus would send monthly checks to provide a more immediate impact or stimulus in 2021
2021 CTC Changes and Expansion under Stimulus Plan
The new Biden stimulus package would make the following temporary changes to the CTC payments in 2021
- Expands eligibility to 17-year-old children (vs 16 or under per current CTC rules). This means children under the age of 18 as of the end of 2021 (last day of the tax year) would be eligible for this advance refundable credit.
- Increase the credit to $3,000 per child older than 6 and $3,600 per child under the age of 6.
- Remove the $2,500 earned income minimum requirement.
- The expanded CTC stimulus is a fully refundable tax credit
- Half of the credit to be paid in advance between July 2021 to December 2021 (you would need to show the partial payments in your 2021 tax return filed next year).
Note that the above payment would be in addition to the $1,400 dependent stimulus check (economic impact payment) that is also in the latest stimulus bill. So in total some families could be getting close to $5,000 per child in 2021 with these two payments! See more in this video on how some families could get up to $10K with these credits. A similar expansion is also proposed to the Earned Income Tax Credit (EITC).
CTC Income Qualification Thresholds
The amount of the credit allowable shall be reduced by $50 for each $1,000 (or 5% of credit) for Taxpayer’s Income (MAGI) exceeds the maximum credit threshold amount.
|2019 or 2020 Tax Filing Status||Income Below Which Full CTC Is Paid (5% Phase-out applies after this)|
|Single or Married filing separate||$75,000|
|Head of household||$112,500|
|Married filing jointly||$150,000|
2020 or 2019 Tax Year Data Used to Figure Eligiblity
The IRS will use the most recent of your 2019 or 2020 tax data (file your tax return via TurboTax) to ensure the latest dependent and payment information can be used. However any dependent 18 or younger at the end of 2021 is eligible for the expanded CTC, which is considered an advanced refundable credit against your 2021 taxes. You won’t have to pay taxes on it, but can also be claimed in your 2021 return as a recovery rebate credit if you don’t get it for some reason this year.
Families that aren’t eligible expanded CTC due to income levels or other reasons would still be able to claim the regular CTC credit of $2,000 per child, less the amount of any monthly payments they got, provided their 2020 AGI is below the current thresholds ($200,000/$400,000).
When Could the Child Tax Credit Stimulus Payments Start from the IRS?
It will take a massive effort by the IRS, under the purview of the Treasury Department, to make these payments from the planned start date for July 2021. Especially given their older systems and already over stretched staff. With a tax season to complete and millions of stimulus checks to pay out, it will like take several months to get monthly payments out to eligible recipients, so expect delays and most likely retroactive payments will need to be made to catch people up for any missed months.
For example, a family with three dependent kids ages 16, 12 and 5 earning less than $120,000 would get up to $800 per month from the IRS from July through December 2021, for a total of $4,800.
Further the monthly payments are only planned for the remainder of this year (50% of total), but could be extended in to 2022 or claimed via tax returns, like the current CTC is. Note that the monthly payments could be optional and for those that prefer, they could just claim this via their 2021 tax returns as well.
How Will Payments be Made?
While the IRS not issued formal guidance yet, they will strongly recommend getting paid via direct deposit as could take several weeks if you choose to get paid via checks in the mail. Your latest tax return payment details will likely be used for making these payments.
According to the ARP stimulus plan, the IRS is required to create an online portal that will allow people (especially for non-filers with no recent tax returns) to update their income, marital status, and number of children who qualify for the credit. That portal will also allow you to opt out of the periodic payments if you want to take the full child credit on your tax return. But again, this could take several months to get going and ensure the right safe guards are in place to prevent the widespread fraud reported with many of the stimulus programs (especially the PUA unemployment program)
What if my child turns 18 in 2021? Will they get the credit?
No. They have to be under 18 at the end of 2021. Since this is refundable 2021 tax credit, paid in advance, it would only cover dependents under the age of 18 on the last day of the tax year. The IRS will issue final guidelines on this soon, but I expect this to be the case as with other child credits.
Will payments be made in 2022?
At this stage the expanded CTC s only for single year – 2021, with monthly payments through to the end of the year. Democrats do want to make it permanent given the wide spread safety net to lower and middle class families, but at a cost of $100 billion per year it will be hard to get approval in Congress for ongoing funding, especially when the Pandemic has receded.