Child Tax Credit Updates

May 27, 2021 |

(From the Financial Literacy Blog) – If you’re a parent, you have likely realized that raising a child can be very expensive. According to the United States Department of Agriculture, middle-income, married-couple parents can expect to spend just over $233,000 to raise a child through age 17. Thankfully, there are several parental tax deductions and credits available to those with dependent children. If you have a dependent under the age of 18, there are some changes to the Child Tax Credit that you may be able to take advantage of.

The American Rescue Plan Act was signed into law by President Joe Biden on March 11, 2021. As part of the new bill, parents who qualify for the Child Tax Credit will begin receiving advanced payments of the newly-enhanced credit on July 15. Instead of having to wait until tax season, parents will receive half of the credit in monthly payments from July to December. Eligible parents will receive the second half of the credit when they file their taxes in early 2022. Those eligible can receive up to $3,600 per dependent.

Who Qualifies for the Credit?

According to the IRS, roughly 39 million households––covering 88% of children in the United States––will qualify for the Child Tax Credit. In order to qualify for the 2021 tax year, parents need to make below a certain income threshold. If you’re a single filer, you need to make under $75,000. If you’re married and you file jointly, you need to make under $150,000. If you’re a head of household filer, you need to make less than $112,500. The payments will be reduced by five cents for each dollar you make above the income threshold. The income reported on your 2020 tax returns (or 2019 if you haven’t filed your 2020 returns yet) will determine your eligibility.

How Much Are the Payments?

  • Starting July 15, qualifying parents will start receiving $300 per month for each dependent under the age of 6 through December. When they file their taxes in early 2022, they will receive another $1,800 for each dependent, for a total of $3,600 per child.
  • Starting July 15, qualifying parents with children between the ages of 6 and 17 will receive $250 per month for each dependent through December. When they file their taxes in early 2022, they will receive another $1,500 for each dependent, for a total of $3,000 per child.
  • Qualifying parents with an 18-year-old dependent are eligible for a partial payment of $500 when they file their taxes in early 2022. Qualifying parents with a dependent between the ages of 19 and 24 are also eligible for a partial payment of $500, but only if the dependent is enrolled in college full-time.

What Do Parents Need to Do?

Most eligible parents won’t have to do anything. Much like past stimulus payments, the Child Tax Credit Payments will be automatically deposited into the account the IRS has on file, or sent via prepaid debit card or paper check. If eligible parents haven’t filed a 2020 tax return, they should do so now in order to receive the monthly payments. Parents will also have access to two new online portals from the IRS, where they can make changes to any life circumstances since they last filed their taxes, including an income change or child custody status.

For example, if eligible parents welcomed a new child in 2021, the current information the IRS has on file wouldn’t show that––with the IRS referencing 2020 filing information. In order for the parents to receive the monthly payments, they would need to make the change within the portals. Also within the portals, parents can opt out of receiving the monthly Child Tax Credit payments and simply receive it all in one lump sum when they file their taxes in early 2022.

To find out what your tax credit payments will be, use this Child Tax Credit calculator.

While this newly-enhanced Child Tax Credit is a welcomed benefit to eligible parents, it’s important to remember that this credit is set to revert to its prior-law levels in 2022. While the Biden Administration has expressed interest in continuing to increase the tax credit, there is no definitive answer as to when or if that will happen.

If you have any questions about how to maximize your tax credit, contact your local credit union.