Child Tax Credit 2021
With the passing of the American Rescue Plan, American families will be able to collect more money through the Child Tax Credit. Families can also collect this money early, but it does come with a cost… that is, if they qualify in the first place. So what changes should I look for in the Child Tax Credit? Who qualifies for early payment? And if I do qualify, what should I look for when I file my 2021 tax return?
Changes to the Child Tax Credit
The American Rescue Plan made two big changes to the Child Tax Credit.
- The amount you can claim per child has been increased from $2,000 to $3,000 ($3,600 per child under the age of 6).
- You can now claim children that turn 17 years old in 2021 under the Child Tax Credit.
This increase was included to help struggling families get through the pandemic, which means these changes are temporary. This increase in the Child Tax Credit is set to expire in 2022, although President Joe Biden is looking to extend this deadline through tax year 2025 through the American Families Plan.
Who is Qualified
To determine if you qualify for the higher Child Tax Credit, the IRS will use the last set of tax returns you filed. So if you have yet to file your 2020 taxes, they will use your 2019 return. You can qualify for the higher credit if:
- Individually, you earned less than $75,000 on your last filed tax year.
- As a joint or married household, the two of you earned less than $150,000 on your last filed tax year.
The increased credit will be reduced (phased out) if you exceed the above limits. If you do not qualify for the higher Child Tax credit, you can still claim $2,000 per child.
The American Rescue Plan will allow qualified parents to collect their payments now for their 2021 Child Tax Credit. Starting in July, the IRS will mail out six total monthly payments of $250 (or $300 if your child is under the age of 6). This is to help struggling families get through the pandemic.
But there are strings attached to this early payment! Because you are receiving the money now, it is not there for you to claim when you file your 2021 tax return. That means your 2021 tax liability will be thousands of dollars more than usual. Fortunately, you can opt out of these early payments via a portal on the IRS website. As the portal is yet to be built, I recommend keeping an eye on this page as July approaches.
What if I Don’t Qualify and I Get a Check Anyway?
If you do not qualify for the higher Child Tax Credit and the IRS sends you a monthly payment, you will need to pay that money back (again, via increased tax liability on your 2021 tax return).
While times might be tough now, it is good to look further into the government’s policies before you freely accept money. As in the case with the early Child Tax Credit payments, I suspect that a lot of people will be caught off guard when it comes time to filing their 2021 taxes. Make sure you are taking everything into account before you ultimately decide on what is best for you and your family.