In March 2021, Congress passed the American Rescue Plan Act, throwing a much-needed financial lifeline to millions of hardworking families devastated by the COVID-19 pandemic.
One major change: a one-time expansion of the federal child tax credit.
Unlike in previous years, the 2021 child tax credit will be distributed in two tranches: The first tranche involves six monthly payments from July to December 2021, followed by a lump-sum payment in April 2022 when you file your taxes. The idea is to get the money to families sooner to pay for expenses such as child care, food, and rent.
We’ve created a guide that answers the most common questions about the newly expanded child tax credit.
What is the child tax credit?
The child tax credit is a federal tax benefit created in 1997 as financial support to families with children.
Taxpayers receive a tax credit when they claim their children as dependents on their tax returns. The tax credit then reduces the taxpayer’s tax liability.
If the credit reduces the tax liability to below $0, the taxpayer receives the difference through a refund.
Who is eligible for the child tax credit?
Most families with qualifying children ages 17 and under are eligible for the tax benefit.
For the 2021 tax credit, the IRS looks at 7 elements to determine if a child is eligible:
- Age: The child must be under the age of 18 on the last day of the year
- Relationship: The child must be your own child, a lawfully adopted child, a stepchild, or a foster child placed under your care by a court or authorized agency. Your siblings and stepsiblings, nieces and nephews, and grandchildren may also qualify provided they meet all other conditions.
- Support: You must be responsible for more than 50% of the child’s expenses.
- Dependent: You must claim the child as a dependent on your tax return.
- Citizenship: The child must be a U.S. citizen, a U.S. national, or a U.S. resident alien.
- Residence: The child must have lived with you for more than half of the tax year. Temporary absences such as school, medical care, and detention in a juvenile facility are counted as time under your care.
- Family income: Qualifying families with incomes less than $75,000 for single, $112,500 for head of household, or $150,000 for joint returns are eligible for the full increased credit. The credit is reduced by $50 for every $1,000 over these thresholds.
Qualifying children aged 18 are eligible for a one-time nonrefundable credit of up to $500 each. Dependents ages 19 to 24 are also eligible for the one-time credit, but they must be enrolled in college.
How much is the child tax credit?
Your child tax credit calculations depend on your income, the number of qualifying children, and their ages. The maximum monthly payment is $300 per child under age 6 and up to $250 per child ages 6 through 17.
For tax year 2021, the child tax credit is divided into two tranches. The first round is spread out into six monthly payments from July to December 2021. The second round is a lump-sum payment in April 2022. This payment represents the other half of the child tax credit you would be entitled to.
For example, a head of household earning less than $112,500 with three qualifying children under 6 could receive a total of $10,800. They could receive $900 per month from July to December 2021 and $5,400 in April 2022.
When can I expect my advance payments?
The IRS has announced that it will release the payments on specific dates.
For the monthly payments, the schedule is as follows:
- July 15: First check
- August 13
- September 15
- October 15
- November 15
- December 15: Last check
The second half of the payment will be released in April 2022.
I haven’t received any payments. What do I do?
Eligible families who haven’t received advanced child tax credit payments may receive adjusted larger deposits to make up for the missed ones.
The IRS acknowledged the issue in a brief statement released last September.
“The IRS is currently looking into this situation, and we will share more information as soon as possible,” the agency said.
The fastest way to receive your advance payments is through direct deposit. Otherwise, you will receive paper checks by mail.
You can also visit the IRS Child Tax Credit Update Portal to check if your payments have been processed.
How will the advance payments affect my taxes?
Keep track of the advance payments you receive in 2021 and compare the figure with how much you can claim come tax time. This is important because the IRS used your 2020 or 2019 tax return to determine your 2021 advance child tax credit payments.
Some taxpayers may realize that they do not qualify for the advance payments when they file their 2021 tax returns in 2022, or that they received more than they were entitled to. If this happens, the taxpayer may have to repay some or all of the credit.
How to file a tax return?
The advance payments have been a great source of help for millions of Americans. With proper planning, you can enjoy the benefits you’re entitled to while minimizing its impact on future tax returns. If you want to make the most of your taxes, talk to a tax expert.
The tax experts at TFX can help you save thousands of dollars on your taxes. For over 25 years, TFX has helped countless American taxpayers file accurate tax returns. You can trust our team to give you the right advice you need.
ABOUT THE AUTHOR
Veronica Rhodes from TFX
TFX is a women-owned tax firm that offers all U.S. tax services — for both American citizens and non-citizens with U.S. tax filing requirements. From straightforward expat tax preparation to complex cases involving multiple factors — we’ve handled it all for over 25 years.