As a further measure in providing financial relief to families struggling under the COVID-19 pandemic, the American Rescue Plan Act (ARPA) temporarily raised the amount of the Child Tax Credit for qualifying families in 2021.
Child Tax Credit Eligibility and Amounts
ARPA has increased the maximum Child Tax Credit amount in 2021 to $3,600 per child for children under the age of six and $3,000 per child for children ages six through 17. The advance Child Tax Credit payments will generally be made on the 15th of each month to create financial certainty for families while planning their budgets. All eligible families will receive a payment of up to $300 per month for each child under age six and up to $250 per month for each child ages 6-17, with the first payment of the expanded advanceable Child Tax Credit to be made on July 15.
The increased portion of the Child Tax Credit in 2021 is available to taxpayers with a modified adjusted gross income (AGI) of $75,000 or less for singles, $112,500 or less for heads of households and $150,000 or less for married couples filing a joint return, as well as qualified widows and widowers. The pre-existing Child Tax Credit is still available for those taxpayers with AGI up to $400,000 for joint filers and $200,000 for other taxpayers. The modified AGI is the amount shown on Line 11 of most individuals’ 2020 Form 1040 or 1040-SR.
The credit is fully refundable for 2021. This means that eligible families can receive the credit even if they owe no federal income tax, when, before this year, the refundable portion was limited to $1,400 per child.
Online Tools for Families
On June 22, 2021, the Internal Revenue Service (IRS) launched three new online tools to help families manage the advance monthly payments of the Child Tax Credit under ARPA.
The three new online tools include:
- The Child Tax Credit Update Portal, which allows families to verify their eligibility for payments and, if they choose to, unenroll or opt out from receiving monthly payments.
- The Child Tax Credit Non-Filer Sign-up Tool, which helps families who are not normally required to file an income tax return to register for the Child Tax Credit.
- The Child Tax Credit Eligibility Assistant, which also helps families determine whether they qualify for Child Tax payments.
The Child Tax Credit Update Portal
The Child Tax Credit Update Portal allows families to verify their eligibility for advance payments and, if they choose to, unenroll or opt out from receiving monthly payments. Families who do so will receive a lump sum when they file their annual tax return the next year.
This tool is a secure, password protected tool that is made available to any eligible family with Internet access. Future versions of this tool will allow people to view their payment history, adjust bank account information and update their mailing addresses, as well as include other features, such as a Spanish version.
Many families will elect not to receive advance payments, while others may prefer to wait until the end of the year and receive the entire credit as a refund once they file their 2021 tax return. The first release of the Update Portal incorporates an unenroll feature that can be helpful for families who no longer qualify for the Tax Credit or who wish to utilize the credit to offset other taxes. Families may want to unenroll from advance payments if:
- They are paying quarterly estimated income taxes and have already considered the credits in those calculations.
- They have reduced withholding amounts to reflect the credit and would not typically expect a large refund when filing their tax returns;
- Their 2021 income is too high;
- Someone else qualifies to claim their child or children as dependents in 2021; or
- Their main home was outside of the United States for more than half of 2021.
If you are managing one of the above scenarios, please reach out to your BSSF Tax Advisor to discuss your best option for managing your advanced payments.
To access the Child Tax Credit Update Portal, a person must verify their identity to protect their account and information from identity theft. Even if Internet access is not available, the IRS can unenroll families by phone via the number included in the recipient’s outreach letter.
Monthly payments will be issued to eligible families who:
- Filed either a 2019 or 2020 federal income tax return
- Used the Non-Filers Tool in 2020 to register for an Economic Impact Payment
- Registered for the advance Child Tax Credit this year using the new Non-Filer Sign-Up Tool on the IRS.gov website.
Any families who took these steps do not need to complete any other steps to receive their payments. The IRS normally will calculate the advance payment based on the 2020 income tax return, but if that return is not available for any reason, the IRS is instead determining the payment using the 2019 tax return. The planned dates that the IRS will issue advance Child Tax Credit payments are July 15, August 13, September 15, October 15, November 15 and December 15.
Any families who have yet to file their 2020 tax returns (or 2019 return) are encouraged to do so by June 28 so they can be eligible for the first batch of monthly payments scheduled for July 15. Even if monthly payments begin after July, the IRS will adjust the monthly amounts to ensure that people still receive half of their total eligible Child Tax Credit benefit by the end of the year.
It is important to note that filing soon will ensure that the IRS has families’ most current bank account information and key details about qualifying family members, including families experiencing homelessness, as well as those in underserved groups. For most families, the easiest way to file a return is to use the IRS Free File, which enables them to claim other family-oriented tax benefits, if eligible, such as the Recovery Rebate Credit/Economic Impact Payments and the Earned Income Tax Credit.
The Non-Filer Sign-up Tool
The new Non-Filer Sign-up Tool is available for families who do not normally file an income tax return and is available exclusively on the IRS.gov website. The tool asks users to supply current bank information, along with specific details about themselves and their qualifying children among other things. The Tool then automatically files a very basic 2020 federal income tax return that is electronically sent to the IRS.
The Child Tax Credit Eligibility Assistant
If families are unsure of whether they qualify for either the credit or the advance payments, they may want to check out the Child Tax Credit Eligibility Assistant. This tool requests no personalized information, but it can still help an eligible family determine whether they should take the next step and either file an income tax return or register using the Non-Filer Sign-up Tool.
The IRS is working closely with its community partners to ensure wide access to the Non-Filer Sign-up Tool and the Child Tax Update Portal. The IRS is also providing additional materials and information that can be easily shared through social media and email to create awareness of the opportunity to qualifiable families.