The American Rescue Plan Act (ARPA) expanded the Child Tax Credit for tax year 2021 only, allowing families to receive advance payments instead of taking the full credit on their 2021 tax return. The goal of increasing the credit, along with monthly payments, is to help families that have struggled during the COVID-19 pandemic and lessen child poverty in the U.S.
Beginning July 15, the IRS will start issuing monthly advance payments to families based on their 2020 or 2019 tax return.
The ARPA increased the Child Tax Credit from $2,000 to $3,000 per child (Age 6-17) or $3,600 per child (Age 0-5). Advance payments will be paid from July through December 2021. Advance payments will be up to 50 percent of the total credit with the remaining credit claimed on your 2021 tax return.
Although the goal is to help as many families as possible, every family won’t qualify for the increased credit. The increased Child Tax Credit is reduced depending on your adjusted gross income and your tax return filing status in 2020 (or 2019 if 2020 hasn’t been filed yet). Below is a chart showing the amount per child and the amount for each monthly payment for a family that qualifies for the credit. The second chart shows filing status along with the phase out limit for each.
|Age||Credit Amount||50% of Credit||Monthly Payment|
|0-5 years old||$ 3,600.00||$ 1,800.00||$ 300.00|
|6-17 years old||$ 3,000.00||$ 1,500.00||$ 250.00|
|Filing Status||Phase Out Limit|
|Married Filing Jointly/ Qualifying Widow||$ 150,000.00|
|Head of Household||$ 112,500.00|
The ARPA does not remove the pre-existing $2,000 child tax credit. That means that if you don’t qualify for the increased amounts ($3,000 or $3,600), based on the phase out limits above, you may still qualify for the $2,000 credit. The $2,000 credit will result in a monthly payment of $167. The remaining credit will be claimed on your 2021 tax return.
The IRS will be creating an online portal on their website beginning July 1 where you can update all your information like marital status, qualifying children, and income. Payments are set to begin July 15, 2021, so if you need to update any of your information, we advise you to do it as soon as the portal is active.
If you have questions about how this credit might apply to you, please feel free to contact one of our CPAs at (616) 642-9467 or request a complimentary accounting consultation.