In March of this year the American Rescue Plan Act of 2021 was signed into law. One of the key elements of this new bill was the expansion of the Child Tax Credit for 2021. A few important points about this tax credit increase is that it only applies for 2021, the amounts of the tax credit went up, the tax credit is fully refundable, and more children qualify. Also for the first time, families will receive a tax credit in advance beginning next week. S
Here are the details. First, for children under age six the child tax credit has increased from $2,000 to $3,600 per child. If you have a newborn any time during 2021, that child will also qualify for the full $3,600 credit. For children ages six to seventeen the child tax credit has increased to $3,000 per child. So not only have the amounts of the credit gone up, but this year seventeen year olds also qualify.
For dependent children that are 18 years old, you will receive a one time tax credit of $500. And for dependent children ages 19 to 24 that are full-time college students you’ll also receive a one time tax credit of $500.
Another big change is that this year families will receive one-half of their Child Tax Credit in advance for children 17 and under. Beginning July 15th you will receive half of the credit spread out over the next six months, and the other half of the credit when you file your 2021 tax return. For each child under age six you will receive $300 a month from July to December, then the rest, $1,800 per child, when you file your tax return after the end of the year. For children six to seventeen, the payments will be $250 per month, and $1,500 when you file.
If you get tax refunds from he IRS through direct deposit, you should get these payments in your bank account on the 15th of each months until the end of the year. If you don’t use direct deposit, you should receive your payments in the mail around the same time.
Note that a child must live with you at least six months out of the year, must be a US citizen and have a Social Security number. Also there's a phase out of the credit based on for income. If you file as head of household and have an adjusted gross income (AGI) of $112,500 or less you get the full tax credit amount. Married filing jointly your AGI needs to be $150,000 or less to qualify for the full amount. Both phases out above that. Also for this year, the child tax credit is fully refundable, soeven families no income will receive the full amount of the tax credit.
If you filed tax returns for 2019 or 2020, or if you signed up as a non-filer last year to receive stimulus checks, you are already signed up and don’t need to take action. Otherwise, you can sign up using the IRS Non-filer Signup Tool to start the monthly payments at: https://www.irs.gov/credits-deductions/child-tax-credit-non-filer-sign-up-tool
And lastly, it’s important to remember, that while there is talk of making these changes permanent, it is still only in place for 2021. And will revert back to the old rules for 2022. Keep in mind, the monthly payments aren’t additional credits. Th IRS is paying you half of tax credit in advance. So the refund you receive when you file next spring may be less than you got last year, and the monthly payments won’t be made in 2022 either unless the law is changes again. So, you’ll want to plan on that in your budget next year.
If you have any questions or would like my help with your financial life, got to my website www.moneypilotadvisor.com and drop me a line.
