This IRS has recently expanded the Child Tax Credit in response to the economic impacts of the COVID-19 pandemic under the American Rescue Plan Act of 2021. As a result, many American families can expect to receive advance payments for the 2021 tax year’s Child Tax Credit starting this Summer.
AMOUNT OF CHILD TAX CREDIT – INCREASED: The amount of the Child Tax Credit has increased for tax year 2021. Up from the traditional $2,000 per qualifying child, families claiming the Child Tax Credit will receive up to $3,000 per qualifying child who is between the ages of 6 and 17 as of December 31, 2021. Families claiming the Child Tax Credit for children under the age of 6 as of December 31, 2021 will receive up to $3,600 for the qualifying child. Phase outs on this increased amount of Child Tax Credit will begin at $75,000 in income (or $112,500 for Head of Household/$150,000 for Married Filers).
WHEN YOU RECEIVE – THROUGHOUT 2021 VERSUS AT 2021 TAX FILING: The IRS intends to remit the advance payments of the 2021 Child Tax Credit in equal installments from July through December. The total advance payments will be up to 50% of the Child Tax Credit and will be estimated from the 2020 tax return or 2019 if 2020 has not yet been filed and processed.
HOW TO TAKE ADVANTAGE OF THE ADVANCE CREDIT: The only thing that eligible Taxpayers should do at this time to take advantage of this advance tax credit is file their 2020 income tax return. Taxpayers should file their 2020 tax returns as soon as possible to ensure they are eligible for the appropriate amount of the Child Tax Credit.
HOW TO OPT OUT OF THE ADVANCE CREDIT: If a Taxpayer does not want to receive an advance payment of their 2021 Child Tax Credit, they will have the opportunity to opt out. The IRS has not yet released instructions on how to do so at this time.
The Child Tax Credit for qualifying children is a refundable tax credit, meaning that even if a Taxpayer has no earned income or owes no income taxes, the Taxpayer can still benefit. This initiative is sure to help families with children who need financial support while on the road to economic recovery in 2021. Follow along with our Bryson Blog for more updates about this and other IRS news!