Here’s some good news for families who will qualify for the Child Tax Credit on their 2021 federal tax return: The credit is bigger, and the money is being sent out now.

The changes are part of the American Rescue Plan Act, signed into law by President Biden in March. They are designed to help families still dealing with the economic disruption caused by the COVID-19 pandemic. About 88 percent of U.S. households with children will receive the credit, according to the IRS.

Listen to audio highlights of the story below:

For those who qualify, the expanded child tax credit is up to $3,600 for each child under the age of six and up to $3,000 for each child six to 17, up from a maximum of $2,000 per child for tax year 2020. Previously, the cutoff was for children age 16.

Rather than making these families wait until they file their 2021 tax return next year to receive the money, the U.S. Treasury Department will send half the total amount of the credit in six advance payments between July 15 and Dec. 15, either by direct deposit or check. The other half of the credit can be claimed on 2021 tax return filed next year.

The IRS sent letters to more than 36 million families who may be eligible. Those who qualify will get a second, personalized letter, that shows the amount of each monthly payment—up to $300 for children under 6, and up to $250 for those six to 17.

Another big change: The Child Tax Credit is fully refundable for 2021, so eligible families will get it, even if they have no earned income and don’t owe any federal income tax. Previously, the refundable portion was limited to $1,400 per child.

As NerdWallet explains in a blog post, the program could reduce your tax bill to zero, and you might be able to get a tax refund check for anything left over.

The White House says making the credit fully refundable will get more money to low-income families, and should reduce the number of children living in poverty by half.

Do I Qualify?

To receive this tax credit, families must have a qualifying child and meet certain income restrictions.

The new maximum credit is available to taxpayers with modified adjusted gross incomes (AGI) of:

  • $75,000 or less for single filers
  • $112,500 or less for heads of household
  • $150,000 or less for married couples filing a joint return, and qualified widows and widowers

For most, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. The credit is reduced for those who exceed these income thresholds.

Children qualify if they are related to you, and:

  • 17 years old or younger as of December 31, 2021
  • A U.S. citizen, national, or resident alien
  • Have a Social Security number
  • Lived with you at least half the year in 2020
  • You provided at least half of their support last year

What Do I Need to Do?

The IRS will use your latest tax return to determine if you qualify for the credit and for how much.

“I would say the majority of families do not have to do anything,” said IRS spokesperson David Tucker. “For those who have already filed, that will be their 2020 return. If not, then we’ll be using their 2019 information.”

Those who don’t make enough to file a tax return can apply for the credit by using the Non-filer Sign-up Tool on the IRS website. It asks a few questions about the taxpayer and their children, as well as current bank information. The tool then automatically fills in a basic 2020 federal income tax return that is electronically sent to the IRS.

The IRS will issue advance Child Tax Credit payments on these dates: July 15, August 13, September 15, October 15, November 15, and December 15. This will create “financial certainty for families to plan their budgets,” the IRS said.

Note: Getting this money will not reduce or eliminate any other federal benefits for low-income households, such as SNAP, WIC, or Section 8.

The IRS encourages families who may qualify for the advance Child Tax Credit, and haven't filed their 2020 (or 2019) return, to do so as soon as possible, so they can get their full benefits by the end of the year.

Help is Available

The IRS website has a Frequently Asked Questions page on its website with detailed information about all the changes. The agency has two new portals that help you deal with your specific situation.

The Child Tax Credit Eligibility Assistant lets you quickly determine whether you qualify. Your income or filing status may have changed since you filed your last tax return.

Use the Child Tax Credit Update Portal to verify your current eligibility—and to unenroll, if you no longer qualify. You can also update or add bank account information. Direct deposit is the quickest and most secure way to get your money.

Some people may want to receive all the money next year, as part of any potential refund hen you file your 2021 return next year. Others, who know they no longer qualify, may also want to opt out of these advance payments. You can do this on the Update Portal. It’s too late to stop the July 15 payment, but you can cancel future ones.

“If you get these payments and don't qualify for them, you have to pay that money back,” explained Liz Weston, personal finance columnist with NerdWallet. “It's not like the other stimulus checks where the IRS was very generous and said, ‘if we overpaid, don't worry about it.’ This one, if you get overpaid, you do have to pay the money back.”

A One-Time Benefit

The changes made by the American Rescue Plan Act were only for the 2021 tax year. Unless Congress passes new legislation to extend the enhanced credit, this is a one-shot deal.

Some lawmakers want to make it permanent. President Biden has proposed an extension through 2025. We’ll let you know if anything happens.

 

Become a Smarter Consumer Get free, expert advice delivered to your inbox every Wednesday when you sign up for the Weekly Checklist newsletter.



Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for KOMO radio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.