As you might already know, the American Rescue Plan Act, approved in March 2021 brought a lot of benefits to the American people in efforts to stimulate the economy. Including the approval of an increase in the Child Tax Credit for 2021.
In previous years, the Child Tax credit was only $2000 per eligible child, and it was a Non-refundable credit. What this means is that the credit only can offset a taxpayer’s tax liability taking down to zero, however, it never gives you any refund for the excess.
One of the major advantages is that for 2021 this credit will be fully refundable, and not only that, but usually you will have to wait until you file your tax return to see this refund. This year, the IRS will pay a portion of this credit in advance by monthly payments from July through December and it will be equal to a 1/12 of what you are qualified for.
If you have not filed your 2020 tax return by them, they will take into consideration your 2019 Taxes for eligibility.
What you should expect:
The increase of the Child tax credit is $3,000 (up to 18 years old) and $3,600 for children under the age of 6 years old by December 31, 2021. Keep in mind that the benefit is meant to be for low income parents, your eligibility and amount depends on your modified adjusted gross income (MAGI) reported. Thus, the credit phases out for higher-income taxpayers at a rate of $50 for each $1,000 (or fraction thereof)
Just like the Stimulus checks, it will be cap to:
Married Filing Jointly $150,000
Heads of Household $112,500
By the time you filed your 2021 taxes you will be able to claim the remaining balance of your Child Tax Credit.
The Secretary of the Treasury will establish an online portal for taxpayers that decided to not receive advance payments or provide information that would affect the amount of the advance payment, including the birth of a qualifying dependent, change in marital status or significant changes in income.