The American Rescue Plan Act (ARPA) of 2021 has expanded the child tax credit (CTC) for tax year 2021 only. You qualify for the advanced child tax credit payments if you have a child and your main home is in one of the 50 states or the District of Columbia. Families who claim the child tax credit will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021 and $3,600 per qualifying child under the age of 6 at the end of 2021. The IRS will start making monthly payments in July, through December 2021 based on the information on your 2020 or 2019 tax return. Taxpayers who qualify will generally receive the payments automatically without needing to take any additional action. Taxpayers who have not filed or were not required to file a 2020 or 2019 tax return will be able to file a simplified tax return online that the IRS will make available.
The simplified tax return will allow taxpayers to register for child tax credit payments. The fastest way for taxpayers to receive the advance payments is to file a tax return electronically and provide information about their financial accounts so they can receive the payments by direct deposit. The advance tax credit payments are not considered income and will not be taxable on your 2021 tax return. The payments received in 2021 are based on the IRS’s estimate of your 2021 child tax credit. If the total of the payments received in 2021 is greater than the child tax credit claimed on your 2021 tax return, you may have to repay the excess amount on your 2021 tax return during the 2022 filing season.
The amounts are phased out for income over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for head of households, and $75,000 for all other taxpayers.
Couples that file “married filing jointly” that have income of $400,000 or less or other filers with $200,000 or less will receive the same child tax credit as the prior year but can choose to receive monthly payments. Taxpayers do not need to do anything to receive the advance payments since the IRS will use the information it has on file.
Taxpayers can go online and use the IRS’s child tax credit and update portal to update their information to reflect any new information that may impact their child tax credit amount.