Businesses are opening back up, mask mandates are being lifted, and COVID cases are at an all-time low. Despite this, many families are still facing financial hardship from the economic side-effects of the pandemic such as: higher gas prices, lumber shortages, childcare shortages. The increased and expanded Child Tax Credit is a form of relief that began July 2021. We have created a summary of the important changes you should know about the Child Tax Credit.
Prior to the enactment of the American Rescue Plan Act (ARPA) of 2021, the child tax credit was $2,000 per child under 17 for qualifying income levels: $200,000 single and head of household, $400,000 married filing jointly. The ARPA expanded the credit to include children aged 17 along with an additional credit of $1,600 per child under 6 and $1,000 per child between 6-17 for lower-income thresholds: $75,000 single, $112,500 head of household, and $150,000 married filing jointly. The additional $1,000 or $1,600 credit is reduced by $50 per $1,000 over those lower-income thresholds. The standard $2,000 child tax credit is still available above those thresholds up to the higher income thresholds of $200,000 single and head of household and $400,000 married filing jointly.
Additionally, half of the child tax credit will now be paid out per month from July through December, with the remaining half claimed on the 2021 tax return. The IRS will schedule payments for July 15th, August 13th, September 15th, October 15th, November 15th, and December 15th. The actual date you receive this credit may vary. This monthly payout will occur automatically based on the adjusted gross income (AGI) on your 2020 or 2019 tax return. An online IRS portal will be created by July 1st so that families can update their anticipated AGI and the number of qualifying children or opt-out of the monthly payments entirely.
Opting out of the monthly payments could be ideal for families that budget around receiving a lump sum at the time of filing their tax return, or for families who anticipate an increase in income that may push them over the qualifying income thresholds. This is an important option to consider since overpayments of the Child Tax Credit will be owed back at the time of filing your 2021 return.
The IRS will be using the same disbursement method as used with the stimulus checks (Economic Impact Payments). The amounts will be sent by either direct deposit or check and can be tracked online.