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Households with children endured some of the harshest impacts from the coronavirus crisis in the nation, and to blunt some of the pain, Congress dramatically scaled up the child tax credit, or CTC, for 2021.
President Joe Biden’s $1.9 trillion American Rescue Plan increased the maximum credit that households can claim to $3,600 per child age 5 or younger and $3,000 per child age 6 to 17 (up from $2,000 per dependent under 17).
The bill also made the credit fully refundable for 2021 and directed the IRS to distribute half of the amount that families are eligible for in six monthly advance checks — a system similar to last year’s three coronavirus stimulus checks.
How to qualify for the child tax credit
Whether a household qualifies for the CTC depends on one main factor: income.
Single taxpayers, heads of households and married couples will only qualify for the maximum $3,600 or $3,000 credit if their incomes are below $75,000, $112,500 and $150,000, respectively. After that, single and head of household filers have to make under $200,000 annually to qualify for the $2,000 payment, while married filers’ incomes must not surpass $400,000 a year.
The CTC is then phased out by $50 per every $1,000 over the income threshold.
|Income limits for first $2,000 payment
|Income limits for extra $1,000 or $1,600
|Head of household
The IRS looks at households’ adjusted gross income (AGI) on their most recent tax return to determine whether families qualify. For most, that would be their 2020 income information. Some households, however, might not be required to submit their income information, depending on how much they earned in the year. For 2020, those are single filers who made less than $12,400, as well as heads of household who earned $18,650 and married couples who made $24,800. If that applies to you, you’ll want to take advantage of the IRS’ non-filers tool to enroll in the advance monthly credit.
How much money you can get per child
The total amount that households receive depends on how many dependents they have and how old they are. Then, half of that amount is distributed through six advance monthly checks (unless that household opts out), while the rest a household claims as a tax credit on its 2021 return.
Maximum CTC amount:
- Children under 6: $3,600 for each child (split among six monthly payments of $300 per qualifying child and then $1,800 claimed on your 2021 tax return).
- Children 6 to 17: $3,000 for each child (or six monthly payments of $250 per qualifying child and then $1,500 claimed on your 2021 tax return).
How to estimate your child tax amount
Estimating your CTC requires simple math. Track down your 2020 AGI and match it up with your filing status (single, head of household or married couple). Then compare that with how many dependents you have and how old they are.
Here’s how it all works in practice: Say a married couple that earns $120,000 has two children, ages 7 and 3. The couple would qualify for the full 2021 benefit, bringing their total credit as a household to $6,600. Half of that — $3,300 — would be sent to them in six monthly advance credits ($550 each).
It all gets trickier, however, when an individual is over the income threshold. Say a head of household filer with two children under age 6 earned $210,000 in 2020. Because a household’s credit is deducted by $50 per every $1,000 over the income threshold, that individual would qualify for a reduced CTC worth $3,000.
A good rule of thumb: As long as a single or head of household filer makes less than $240,000 a year, they should receive at least a portion of the CTC. For married couples, that total would be $440,000.
The IRS in late June also created a separate eligibility assistant portal to help verify which taxpayers qualify — and how much they could get.
When advance payments will arrive
In most cases, the IRS has been distributing monthly CTC advance payments to families with no action required. The agency most likely auto-enrolled those that appeared eligible based on their most recent tax return. Those who provided the department with bank account information have been receiving those payments in the form of a direct deposit, while others have been getting their checks by mail.
With the latest batch of payments going out on Oct. 15, there are just two rounds of advance payments left: Nov. 15 and Dec. 15.
Individuals who want to change their bank account or mailing address information, view their payment history, check if they’re enrolled for the advance payment or even unenroll in the monthly credit can go to the IRS’ CTC update portal.
However, you’ll want to make sure you don’t miss the deadline for opting out of the monthly payment. The last two deadlines are both in November.
The IRS recommends unenrolling if your income increased in 2021, altering the amount for which you’re eligible. You may also want to save up the credit should you owe the IRS money at the end of the year.
Meanwhile, personal finance and tax experts say some households who aren’t immediately strapped for cash might want to unenroll in the advance credit, if the lump-sum payment at the end of the year helps them budget or save better. Some families, for example, immediately deposit their tax refunds into their emergency fund.
How the child tax credit can affect your taxes
For most households, the CTC can be a helpful — and crucial — tool because it reduces how much you owe in taxes at the end of the year, padding your refund and preventing you from getting hit with a tax bill. The credit is also fully refundable for 2020, meaning even the lowest income filers can take full advantage. Originally, the credit was just 70 percent refundable.
Yet, unlike stimulus checks, households will want to be cautious about their monthly advance credits. That’s because the IRS might end up reclaiming any overpaid CTC money, though most of the time it can satisfy that balance by reducing your 2021 tax refund, the agency said.
If your income situation improved this year or if you claim fewer dependents since you last filed, you can play it safe by updating your information through the IRS’ portal or even opting out of the advance credit altogether.
Keep an eye out in January 2022 for IRS Letter 6419, which will show your total CTC payments from 2021.
How to track a missing payment
If you’re missing any of your CTC advance credits, your first step should be verifying your eligibility and then double checking your bank account and income information on the IRS’ update portal.
Direct deposit usually ensures the quickest delivery. Mailed checks could take days, if not weeks, longer to arrive.
If their payments are missing, individuals can request a trace by filing Form 3911 with the IRS. Depending on your credit disbursement method, the IRS wants taxpayers to wait a certain allotted time:
- 5 days since the deposit date and the bank says it hasn’t received the payment.
- 4 weeks since the payment was mailed to a standard address.
- 6 weeks since the payment was mailed to a forwarded address.
- 9 weeks since the payment was mailed to a foreign address.
Some delays have happened because of IRS errors. One such example: Some families that had recently updated their information on the IRS’ portal didn’t receive their September checks on time.
Families who did not get a July, August or September payment and are getting their first monthly payment in October will still receive the full advance payment for which they qualify this year, the agency said in a September statement. That money, however, will instead be disbursed over a three-month period, meaning some families could get $600 or $500 per qualifying child.