The IRS has announced that there will be significant changes to the Child Tax Credit beginning in Summer 2021. These changes aim to help families who may need additional financial assistance, especially for those who struggled financially through the COVID-19 pandemic.
Most importantly, for the 2021 tax year, families claiming the Child Tax Credit will now receive up to $3,000 per qualifying child between the ages of 6 and 17 and $3,600 per qualifying child under six at the end of 2021. This is a substantial increase from the previous Child Tax Credit of $2,000 per qualifying child under age 17.
The increased amounts are reduced and phased out for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.
Another significant change to note is that 50 percent of the 2021 Child Tax Credit will be offered as a monthly payment from July through December to eligible taxpayers who live in the United States for more than half the year.
The most important thing to keep in mind is that the child tax credit is not like the rounds of stimulus payments from the past year. These monthly payments are coming out of the sum of a family’s Child Tax Credits. In previous years an eligible family would only receive the Child Tax Credit money the following year when an income tax return is filed. You will now claim the other half of the Child Tax Credit when you file your 2021 income tax return.
Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.
There are many questions about the new changes to the Child Tax Credit and the advance payments, and we will keep you up-to-date and as updates and more information become available.