Families are getting a bigger and better child tax credit for 2021. And, if President Biden gets his way, most of the credit enhancements will continue to be available for several more years while full refundability of the credit will be permanent.
Thanks to the American Rescue Plan, which was enacted in March, this year's child tax credit for many families is increased from $2,000 per child to $3,000 per kid ($3,600 for children under age 6), 17-year-olds qualify for the credit, and the credit is fully refundable. The IRS is required to make advance payments of the child credit to qualifying families in 2021, too. Eligibility for the credit and advance payments, and calculation of the amount of the advance payment, will be based on your 2020 tax return (if a 2020 return hasn’t been filed, the IRS will look to your 2019 return). The advance payments will account for half of a family's 2021 child tax credit. The IRS says it will start sending out monthly payments in July. Families who qualify for the full $3,000 or $3,600 credit could see monthly checks of $250 or $300 per child from July through December. Families with higher incomes who qualify for the $2,000 credit will get monthly payments of $167 per child for the same six months. (To see how much you'll get, use Kiplinger's 2021 Child Tax Credit Calculator.)
The IRS is also developing an online portal so you can update your income, marital status, and the number of qualifying children. If your circumstances change in 2021 from your last filed federal tax return, and you believe those changes could affect the amount of your child credit for 2021, you will be able to go to the portal once it's up and running and update it with the correct information. Also, people who want to opt out of the advance payments, and instead take the full child credit on their 2021 return, will be able to do so through the same online portal. The IRS expects to launch the portal by July 1.
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Extending the Child Tax Credit Enhancements
Although the child tax credit expansions currently apply for this year only, Democrats want to extend the bigger break and eventually make it permanent. They tout the impact that a higher and fully refundable child tax credit would have on reducing child poverty in the United States, and have sponsored bills in Congress to make the credit enhancements and advance payments permanent. For example, Richard Neal (D-Mass.), the Democratic Chairman of the House Ways & Means Committee, recently unveiled proposed legislation to permanently extend the 2021 child tax credit expansions as part of a bigger plan to provide more family and medical leave benefits and to make childcare more affordable.
President Biden has now jumped on the child tax credit extension bandwagon, too. His newly released American Families Plan would extend the expanded child tax credit through 2025, though he would make full refundability, and we assume advance payments, permanent. It should come as no surprise that many of the tax changes that were enacted in former President Trump's 2017 tax reform law are set to expire after 2025, including that law's provision that doubled the child credit from $1,000 to $2,000.
It's too soon to tell whether Biden's American Families Plan proposal can even be enacted. There are lots of hurdles to passage. The big tax increases on upper-income individuals included in the plan make it unpalatable for Republicans, and possibly even for some moderate Democrats. It's easier to predict that the 2021 child tax credit expansions are unlikely to go away after this year. After all, this is Washington, D.C., and politicians will find themselves hard pressed politically to take a tax benefit away from millions of lower- and middle-class Americans.
For more information on this year's child tax credit, see Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs.
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