2021 Child Tax Credit changes

2021 Child Tax Credit changes

The American Rescue Plan Act of 2021 (ARP Act) made changes to the Child Tax Credit (CTC) for the 2021 tax year only.

Taxpayers are typically eligible for a credit of up to $2,000 per eligible child under age 17 at the end of the year.  The credit is typically reported on taxpayers’ returns filed during the subsequent calendar year.

For 2021 only - The definition of a qualifying child for this purpose includes those age 17 at the end of the year.  The maximum amount is increased to $3,000 per qualifying child between the ages of 6 and 17 and $3,600 per qualifying child under age 6.  (The total credit amount continues to be reduced, or 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.)

The CTC is a fully refundable tax credit for 2021, which means taxpayers can benefit from the credit even if they don't have earned income or don't owe any income taxes.

Lastly, the ARP Act creates an advance payment system, whereby half of the 2021 CTC may be prepaid to taxpayers on a monthly basis during July through December.  The IRS will use information from 2019 and 2020 tax returns to estimate taxpayers’ eligibility and amount of the credit, and will prepay 1/12th of the estimated amount per month during this time.  They will issue the prepayments by direct deposit or other methods, similar to their issuance of the economic stimulus payments over the last year.  (Eligible taxpayers who do not want to receive advance payment of the 2021 CTC will have the opportunity to decline receiving the payments.  Taxpayers will also have the opportunity to update information about changes in their income, filing status, or the number of qualifying children.  The IRS has said that more details on how to take these steps will be announced soon.)

Eligible taxpayers do not need to take any action now, other than to file their 2020 tax return if they have not done so.  The IRS is urging those with children to file their 2020 tax returns as soon as possible, to make sure they're eligible for the appropriate amount of the CTC, and reminding that filing electronically with direct deposit bank information can expedite refunds and the advance CTC payments.

Additional and updated information regarding the CTC and advance payments can be found at this IRS website: