Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs
People have lots of questions about the $3,000 or $3,600 child tax credit and the advance payments that the IRS is sending monthly to most families – and we have answers.
The child tax credit is bigger and better than ever for 2021. The credit amount is significantly increased for one year, and the IRS is making monthly advance payments to qualifying families from July through December.
But the changes are complicated and won't help everyone. For instance, there are now two ways in which the credit can be reduced for upper-income families. That means some parents won't qualify for a larger credit and, as before, some won't receive any credit at all. More children will qualify for the credit in 2021.And, next year, when you file your 2021 tax return, you will have to reconcile the advance payments you received with the actual child tax credit you are entitled to.
It's all enough to make your head spin. But don't worry – we have answers to a lot of the questions parents are asking right now about the 2021 child credit. We also have a handy 2021 Child Tax Credit Calculator that lets you estimate the amount of your credit and the expected advance payments. Once you read through the FAQs below and try out the calculator, you should feel more at ease about the 2021 credit.
2020 Child Tax Credit
Question: What were the rules for the 2020 child tax credit?
Answer: For 2020 tax returns, the child tax credit is worth $2,000 per kid under the age of 17 claimed as a dependent on your return. The child must be related to you and generally live with you for at least six months during the year. He or she must also be a citizen, national or resident alien of the United States and have a Social Security number. You must put the child's name, date of birth and SSN on the return, too.
The credit begins to phase out if your modified adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Once you reach the $400,000 or $200,000 modified AGI threshold, the credit amount is reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Modified AGI is the AGI shown on Line 11 of your 2020 Form 1040 (or Line 8b of your 2019 Form 1040), plus the foreign earned income exclusion, foreign housing exclusion, and amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.
Up to $1,400 of the child credit is refundable for some lower-income individuals with children. However, you must also have at least $2,500 of earned income to get a refund.
Changes Made for 2021
Question: What changes did Congress make to the child tax credit?
Answer: The American Rescue Plan Act of 2021 temporarily expands the child tax credit for 2021. First, it allows 17-year-old children to qualify for the credit. Second, it increases the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it makes the credit fully refundable and removes the $2,500 earnings floor. Fourth, it requires half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021.
Note that the other general rules for child-tax-credit eligibility continue to apply. For instance, the child still must be a U.S. citizen, national or resident alien and have a Social Security number. You also must claim him or her as a dependent on your 2021 tax return, and the child must be related to you and generally live with you for at least six months during the year. And you still have to put the child's name, date of birth and SSN on the return.
Qualifying for the Higher Credit Amount
Question: Do all families qualify for the higher per-child tax credit of $3,000 or $3,600?
Answer: No, not all families with children will get the higher child tax credit, but most will. The enhanced tax break begins to phase out at modified AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit.
For example, if a married couple has one child who is four years old, files a joint return, and has a modified AGI of $160,000 for 2021, they won't get the full $3,600 enhanced credit. Instead, since their modified AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100.
Additional Phase-Out
Question: If my 2021 income is higher than the thresholds for taking the $3,000 or $3,600 per-child tax credit, do I still qualify for the $2,000-per-child credit?
Answer: It depends. Families who aren't eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, could claim the regular credit of $2,000 per child, less the amount of any advance payments they get. Families with modified AGIs above the $400,000/$200,000 thresholds will see the $2,000 per-child credit reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over those thresholds.
For example, if a married couple has one child who is seven years old, files a joint return, and has a modified AGI of $415,000 for 2021, they won't get the full $3,000 enhanced credit. First, because of their high income, they don't qualify for the extra $1,000 (see question above), so their credit is reduced to the regular amount of $2,000. Then, since their modified AGI is $15,000 above the second phase-out threshold for joint filers ($400,000), their credit is reduced again by $750 ($50 x 15) – resulting in a final 2021 credit of $1,250.
17-Year-Old Children
Question: Can I take the higher child tax credit for my daughter who turns 17 in 2021?
Answer: Yes. If you meet all the other rules for taking the child tax credit, you can claim the credit for your daughter when you file your 2021 Form 1040 next year. The age for children qualifying for the credit for 2021 is 17 and under (a change from 2020's requirement of 16 and under). So, 17-year-olds qualify as eligible children for the child credit for 2021.
Fully Refundable
Question: What does it mean that the child tax credit is fully refundable for 2021?
Answer: The expanded child credit is fully refundable for families who live in the United States for more than one half of 2021. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit exceeded the taxes they otherwise owed. Under the new rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability.
Parents don't need to be employed or otherwise have earnings in order to claim the child credit for 2021. Prior rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules.
Information from Tax Returns
Question: Who gets the advance payments?
Answer: The American Rescue Plan requires the IRS to pay half of the tax credit in advance. The IRS is sending out monthly payments (mainly in the form of direct deposits) from mid-July through December to eligible families. The IRS is basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks to your 2020 return, and if a 2020 return has not yet been filed, the IRS looks to your 2019 return. The IRS also has procedures for families who are not otherwise required to file tax returns.
Timing and Frequency of Advance Payments
Question: When will the IRS start making payments, and how many payments will I get?
Answer: The IRS will make six monthly child tax credit payments to eligible families from July to December 2021. The first round of payments will arrive on July 15. After that, payments will be issued on August 13, September 15, October 15, November 15 and December 15.
Most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. Most eligible families do not have to do anything to get these payments. The IRS has a tool on its website for families who want to update their bank information with the IRS.
Amount of Monthly Payments
Question: How much will a family get each month?
Answer: The advance payments account for half of a family's 2021 child tax credit. The amount a family receives each month varies based on the number of children in the family, the ages of the kids and the amount of the family's adjusted gross income. For example, families who qualify for the full $3,000 ($3,600 for children under age 6) credit per child get monthly payments of $250 per child ($300 per child under age 6) for six months. Families with higher incomes who qualify for the $2,000 credit get monthly payments of $167 per child for six months. (Yes, advance payments will go to all families who are eligible for the child tax credit, and not just to those who qualify for the $3,000 or $3,600 per-child higher credit).
Take a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn't opt out of the advance payments, they will get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 federal tax return next year.
If that same family with three children qualifies for the $2,000 per-child credit and doesn't opt out of the advance payments, they will get $500 per month from the IRS from July through December, for a total of $3,000. They will then claim the additional $3,000 in child tax credits when they file their 2021 Form 1040 next year.
Use our 2021 Child Tax Credit Calculator to see how much you'll get!
Changes to Your Family or Income
Question: What if my family circumstances change during the year and I have more income or less income than shown on the 2019 or 2020 return that I filed with the IRS?
Answer: As mentioned above, the IRS is generally basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks at your 2020 return. If you haven't filed a 2020 return, the IRS looks at your 2019 return. The IRS assumes that the number of children and the income that you reported on your 2020 (or 2019) return are the same for 2021. It accounts for the passage of time only for determining the age of the children.
The IRS has developed a Child Tax Credit Update Portal. Right now, the tool's features are limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update your income, marital status and the number of qualifying children. You will also be able to update your mailing address and view your payments. So, if your circumstances changed in 2021, and you believe those changes could affect the amount of your child credit for 2021, go onto that portal once it is fully functional and update it for the correct information.
The IRS is also sending two rounds of letters to families that it believes may be eligible for monthly child credit payments based on 2019 or 2020 tax return data. The first round is generally for informational purposes. The second round of letters will list the family's estimated monthly payment amount. You can also check your eligibility status for advance payments on the IRS's Child Tax Credit Update Portal.
Verifying Eligibility for Advance Payments
Question: I think I qualify for monthly payments of the child tax credit, but I want to be sure that I am automatically enrolled in the IRS's system. Is there a way to check this?
Answer: Yes, you can do this online using the IRS's Child Tax Credit Update Portal. Once you have gone through all the steps to create an account and log on, you will be able to verify your eligibility for monthly payments and check on the status of those payments.
If the tool says a payment was issued, but you haven't received it, then you can fill out IRS Form 3911 and send it to the IRS to start a payment trace. You'll have to wait at least five days from the anticipated direct deposit date and at least four weeks for mailed checks before the IRS can begin a trace on any missing payment.
Updating Bank Account Information
Question: I want to make sure that the IRS has my correct bank account information so that my monthly payments can be directly deposited into my account. How do I do that?
Answer: As a general rule, most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. You can go on the IRS's Child Tax Credit Update Portal to check whether you are going to get direct deposit payments and the bank account into which such payments will be made. Those who are not enrolled for direct deposit will get paper checks or debit cards unless they update their bank account information.
The tool also allows people to add a bank account for direct deposits (if there is not an account otherwise listed) or change the currently existing one listed on the portal. You will have to enter the bank routing number, account number, and indicate whether the account is a checking account or savings account.
New Babies in 2021
Question: What if I had a baby this year? Will I get advance payments?
Answer: Because the IRS does not know about the baby, you won't receive payments for the first couple of months. But eventually, you will be able to use the IRS's Child Tax Credit Update Portal to give the IRS this information. As discussed above, the tool's features are currently limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update the number of qualifying children to account for your new baby so the IRS will know to begin sending you payments. If you decide not to do this, you're not out of luck. You won't get the payments, but you'll be able to account for your child when you file your 2021 return next year. Provided you are otherwise eligible to take the child credit, you can take a child tax credit of up to $3,600 for your baby on your 2021 Form 1040.
Opting Out of Advance Payments
Question: I know I will qualify for a child tax credit for 2021, but I don't want to receive advance payments. Is there a way of opting out?
Answer: Yes. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return can do so now through the IRS's Child Tax Credit Update Portal. You will first have to verify your identity before using the tool. If you already have an existing username, you're set to go. People without an existing account will have to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS.
There are other reasons people may decide to opt out of the advance payments besides wanting to take the fully refundable child credit in one lump sum on their 2021 tax returns. For example, opting out is recommended for families who claimed the child credit on their 2020 return, but know they will not be able to do so for 2021 because their modified AGI will be too high. A divorced parent who claimed a child as a dependent in 2020, and whose ex-spouse is eligible to claim the child in 2021, should also look into opting out of advance child credit payments.
Note that there are deadlines for opting out if you want to cut off monthly payments before the next one arrives. To opt out before you receive a certain monthly payment, you must unenroll by at least three days before the first Thursday of the month in which that payment is scheduled to arrive. It is now too late to opt out of the July 15 payment, but if you want to opt out of the next five monthly payments, you'll have to go on the IRS's Child Tax Credit Update Portal and unenroll no later than August 2. For more details on when to opt out and a full schedule of the opt-out deadlines, see When to Opt-Out of Monthly Child Tax Credit Payments.
Not Required to File Tax Returns
Question: I do not file tax returns because my income is below the threshold required to file. Will I still qualify for the advance monthly payments?
Answer: Yes, but you'll have to jump through a few hoops if you didn't use the IRS's online tool for non-filers in 2020 to provide information to the tax agency for purposes of qualifying for stimulus payments. That tool was called the "Non-Filers: Enter Payment Info Here" portal.
The easiest way to do this is to use the IRS's Non-Filer Sign-Up Tool on the agency's website. If you want your payments directly deposited into your bank account, which is faster than getting a paper check, you can also provide your account information through the tool. If you use the Non-Filer Sign-Up Tool, you'll be asked to provide personal information such as your name, address, email, date of birth and Social Security number (or other taxpayer identification number). If you want your payments by direct deposit, you'll also have to give your bank account number, account type and routing number.
The IRS hopes most non-filers will go online and use its Non-Filer Sign-Up Tool. But it also has alternative procedures for people who want to file a simple return. The IRS will accept simple returns on Form 1040 or Form 1040-SR filed electronically or on paper. But you don't have to fill out the entire return. Instead, you will only need to include your filing status, your identifying information (name, address and Social Security number) and that of your spouse, provide information about your children and dependents, and follow the rest of the IRS's instructions. Alternatively, if you had no AGI for 2020, you may electronically file a regular Form 1040 or 1040-SR return. For a complete rundown of the IRS instructions for simple returns and zero AGI returns, see Child Tax Credit 2021: How to Get Monthly Payments if You Don't File Tax Returns.
Social Security Numbers for Children
Question: My child doesn't have a social security number. Can I claim the child credit or get advance payments?
Answer: No. The American Rescue Plan didn't eliminate the requirement that only children with Social Security numbers qualify for the child credit. You must put your child's name, date of birth and Social Security number on the Form 1040.
Although children must have Social Security numbers, you can have either a Social Security number or an individual taxpayer identification number.
Offset for Back Taxes or Child Support Arrears
Question: Will monthly payments be reduced for taxpayers who owe back taxes or child support?
Answer: No. The IRS cannot take the payments to offset past-due federal taxes, state income taxes, or other federal or state debts. The same goes for people who are behind on child support payments. However, there are no protections against garnishment by private creditors or debt collectors.
Although the advance monthly payments can't be offset, the same rules don't apply to a tax refund applicable to the child tax credit taken when you file your return next year. For example, if your actual 2021 child credits exceed the monthly payments you received, the difference may be refundable but can also be offset by back taxes, past-due child support, etc.
Taxation of Advance Payments
Question: Do I have to pay tax on the payments I get?
Answer: No. The payments that you receive are advance payments of the 2021 child tax credit, so they are not taxable. On your 2021 Form 1040 that you file next year, you will reconcile the monthly payments that you receive from the IRS in 2021 with the child tax credit that you are actually entitled to.
Reconciliation of Advance Payments
Question: How do I reconcile the advance payments I get with the actual credit I am entitled to?
Answer: When you fill out your 2021 Form 1040 next year, you will compare the total amount of advance child tax credit payments that you received for 2021 with the amount of the actual child tax credit that you can claim on your 2021 return. Don't worry if you forgot the amount of advance child tax credit payments you got in 2021. The IRS will mail out a notice by January 31, 2022, showing the total amount of payments made to you during 2021. You should keep this letter with your tax records to help you fill out your 2021 return.
If the amount of the credit exceeds the payments you receive, you can claim the excess credit on your 2021 Form 1040. If the credit amount is less than the payments you got, you may or may not have to pay the excess back.
Paying Back Overpayments
Question: Do overpayments of the child credit need to be paid back?
Answer: It depends. With advance payments of the child tax credit, there will sure to be instances in which families receive more in advance child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplates this by providing a "safe harbor" for lower- and moderate-income taxpayers.
Families with 2021 modified AGIs at or below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return won't have to repay any credit overpayments that they get. On the other hand, families with 2021 modified AGIs of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return will need to repay the entire amount of any overpayment when they file their 2021 tax return next year. And families with 2021 modified AGIs between these thresholds will need to repay a portion of the overpayment.
Post-2021 Child Tax Credit
Question: Will the higher child tax credit and advance payments eventually be made permanent?
Answer: Yes, if Democratic lawmakers get their way. Remember that the child tax credit expansions apply only for 2021. Congressional Democrats would like to see the enhancements made permanent, touting the impact that a higher and fully refundable child tax credit would have on reducing child poverty in the United States. For example, Congressman Richard Neal (D-MA), the Democratic Chairman of the House Ways & Means Committee, said the 2021 child tax credit enhancements are unlikely to go away, and he has unveiled proposed legislation to permanently extend those expansions. President Biden has also jumped on the child tax credit extension bandwagon. His proposed American Families Plan would extend the expanded credit through 2025, though he would make full refundability, and we assume advance payments, permanent.
If the 2021 child tax credit expansions are not made permanent, or at least temporarily extended past 2021, then the rules that applied for 2020 returns will kick back in beginning in 2022.
