While the $1.9 trillion American Rescue Plan signed by President Joe Biden in March got headlines because of the $1,400 payments sent to millions of people as financial relief during the COVID-19 pandemic, the stimulus package also enacted several changes to the child tax credit.
Among the changes was an increase in the tax credit people can receive. Prior to the American Rescue Plan, the child tax credit was worth up to $2,000 per eligible child. This year, the credit is worth up to $3,600 per child, depending on age. Many people have had questions about whether they are eligible for the credit and how they might receive it.
THE QUESTION
VERIFY viewer Kathryn asked: For children born in 2021, are they eligible for the expanded child tax credit of $3,600?
THE SOURCES
- IRS
- American Rescue Plan
- Congressional Research Service
- Mark Steber, senior vice president and chief tax information officer at Jackson Hewitt Tax Service
THE ANSWER
Yes, eligible parents will be able to get a $3,600 child tax credit for children born in 2021.
WHAT WE FOUND
The child tax credit has been an option for decades to help families offset their tax liabilities, according to Mark Steber, senior vice president and chief tax information officer at Jackson Hewitt Tax Service.
“It’s merely a tax credit on your income tax return, which is different than a tax deduction,” Steber said. “It's a dollar for dollar offset of any income tax liability that you might have had based on the number of children that you have that are qualifying dependents. And there are some other thresholds: relationship, income level and so forth.”
The maximum child tax credit this year is $3,000 for dependents ages 6 to 17, and $3,600 for dependents 5 and younger, according to the IRS.
So, people who have babies in 2021 will be able to claim a child tax credit of up to $3,600 as long as they meet the other child tax credit requirements.
The maximum child credit is available to people at the following income levels:
- $75,000 or less for singles
- $112,500 or less for heads of household
- $150,000 or less for married couples filing a joint return and qualified widows and widowers.
Some people above those income thresholds will still qualify for a child tax credit, but not the maximum amount. The usual $2,000 child tax credit is still available for single filers who make up to $200,000 and joint filers who make up to $400,000, according to the Congressional Research Service. The $2,000 credit is then phased out above those income thresholds.
Qualifying for the child tax credit is one thing, but getting it is another. The IRS is giving people two options this year. One option is through advance monthly payments, a change under the American Rescue Plan.
The advance payments will begin being sent on July 15, according to the IRS. The payments, which will be sent by direct deposit or check, will continue to be made monthly on Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15. Each payment will be worth up to $300 per month for each qualifying child 5 and younger and up to $250 per month for each qualifying child ages 6 to 17, the IRS says. In total, the monthly payments could add up to 50% of the child tax credit, with parents being able to get the rest of the credit when they file their 2021 taxes.
The IRS is using tax return information from 2019 and 2020 to determine who is eligible for advance payments. As a result, the agency will likely be unaware a family is newly eligible or eligible for an additional child tax credit due to a child being born in 2021.
Those parents can get their child tax credit through the second option, which is a lump sum credit when they file their 2021 taxes. This is traditionally how child tax credits have been redeemed.
The IRS says it will soon announce an online tool that will allow people to opt-out of advance monthly payments, as well as update their information about income changes, filing status and the number of qualifying children. When that information is updated, parents should be able to begin getting advance monthly payments.
The idea behind the advance payments is to get some of that child tax credit money to people sooner, Steber said.
“There's this tax benefit just sitting there for people to take,” he explained. “And some feel that you're waiting till next January, waiting to April, that's fine. But since you know that many of these 40 million people are going to get it, maybe it's a good idea to prepay it. That's not gaming the system, it's not doing anything other than getting taxpayers their money early.”
The IRS on June 7 announced that it began sending letters to more than 36 million families to notify them they may be eligible for the advance child tax credit payments. People who qualify will receive a second, personalized letter listing an estimate of their monthly payment.
The increased child tax credit is currently set to expire at the end of the year. Without new legislation, the child tax credit in 2022 will go back to the standards that were in effect prior to the American Rescue Plan. President Biden, as part of the $1.8 trillion American Families Plan, has proposed extending the child tax credit changes through 2025.
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