The Historic Child Tax Credit of 2021

July 14, 2021

by Candace J. Dixon

The American Rescue Plan enacted in March provides for historic and major tax relief to nearly all working families with the expansion of the Child Tax Credit of 2021.

Changes to the Child Tax Credit for 2021

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for qualifying children under the age of 6 and to $3,000 per child for qualifying children between ages 6 and 17, and it raised the age limit from 16 to 17. Prior to 2021, the credit was worth up to $2,000 per eligible child. Also, the entire credit is fully refundable for 2021, meaning eligible families can get it even if they owe no tax. Before this year, the refundable portion was limited to $1,400 per child.

All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (Head of Household filing status).

The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:

$75,000 or less for singles,
$112,500 or less for heads of household, and
$150,000 or less for married couples filing a joint return and qualified widows and widowers.

For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every extra $1,000 in modified AGI.

This "new" Child Tax Credit is only for 2021; however, President Biden proposes to extend it "for years and years to come" in his American Families Plan.

Advance Child Tax Credit Payments

Usually, tax relief for the year only comes the following year when you file your taxes, no matter how much you need it now. This year, for the first time, people will receive the Child Tax Credit in monthly payments starting in July. The IRS will pay half the total credit amount in advance monthly payments, and you will claim the other half when you file your 2021 income tax return.

The first advance payment will be made on July 15, 2021. See When will the IRS begin issuing the advance Child Tax Credit? for a full schedule of payments. For every child 6-17 years old, families will get $250 each month, and for every child under 6 years old, families will get $300 each month.

How to Get the Benefits

If you’ve filed tax returns for 2019 or 2020, or if you signed up with the Non-Filer tool last year to receive a stimulus check from the Internal Revenue Service, you'll get the monthly Child Tax Credit automatically. You don't need to sign up or take any action. If you haven't filed or registered with the IRS, now is the time to take action. The sooner you do, the sooner you will begin receiving monthly payments.

If you're not sure you qualify, the IRS has a three-step process that can help. (Each step corresponds with a free online tool on the IRS.gov website):

Step 1: See if you qualify using the Child Tax Credit Eligibility Assistant.
Step 2: If you determine that you're eligible for the credits but you don't normally file a return, you can register with the IRS using the Child Tax Credit Non-filer Sign-up Tool. (Alternatively, you can file a tax return.)
Step 3: Once you're registered, the Child Tax Credit Update Portal will let you manage your payments, update your bank account information, and "un-enroll" from receiving the credits if you want to or need to.

See if You're Eligible with the Child Tax Credit Eligibility Assistant

Before filing a return or using the Non-filer Sign-up Tool, you may want to use the Child Tax Credit Eligibility Assistant. This optional step can be especially helpful if you're unsure whether you qualify for either the credit or the advance payments. Since it's not a registration tool, it doesn't request any personal information from you.

Through answering a series of questions, the tool helps you to make a preliminary determination as to whether you qualify for the credit and the payments, and whether or not you should take the next step and either register using the Child Tax Credit Non-filer Sign-up Tool or file a tax return.

Register Using the Child Tax Credit Non-filer Sign-up Tool

If you didn't file tax returns or use the Non-Filer tool last year, you can use the IRS' Child Tax Credit Non-filer Sign-up Tool to sign up now. These payments do not count as income for any family, and signing up won’t affect your eligibility for other federal benefits like unemployment insurance, Medicaid, SNAP, SSI, SSDI, TANF, WIC, Section 8, or Public Housing.

To register you will need the following:

Social Security Social Security numbers for your children, you and your spouse (or ITIN)
A reliable mailing address
An e-mail address
Your bank account information if you want to receive your payment by direct deposit
Your IP PIN (Identity Protection Personal Identification Number), if you received one from the IRS earlier this year

Once you use the Child Tax Credit Non-filer Sign-up Tool to give the IRS your information, they will automatically use it to determine your eligibility and issue any advance payments based on it; you won't have to do anything else to receive the payments. You can also use this tool to claim the 2020 Recovery Rebate Credit and get your third Economic Impact Payment. For more information, you can refer to and download IRS Publication 5538, A Step-by-Step Guide to Using the Non-filer Sign-up Tool for Child Tax Credit & Economic Impact Payments.

Instead of using the Child Tax Credit Non-filer Sign-up Tool, you can file a regular federal income tax return for 2019 or 2020 or both; that will also help you claim other family tax benefits like the Earned Income Tax Credit and the Recovery Rebate Credit. If you made $72,000 or less, you can file online with IRS Free File, and if you made more than $72,000 and don't mind preparing the returns yourself, you can still file them for free online using the IRS' Free File Fillable Forms.

While the IRS cautions that filing now is too late for you to receive anything in this first batch of monthly payments scheduled for July 15, it will still allow you to receive payments later this year. Even if your monthly payments start after July, each amount will be adjusted upward to make sure that you still receive half of your total eligible Child Tax Credit benefit.

The Child Tax Credit Update Portal

You can now use another online tool from the IRS, the Child Tax Credit Update Portal, to see if you're enrolled to receive the payments, to update your banking information, and to even unenroll from it all if you want to or need to. You'll need a photo ID to use this tool if you don’t have an existing IRS username or ID.me account.

How (and Why) to "Unenroll" from Advance Child Tax Credit Payments

There are several reasons why you might choose to un-enroll, such as if you expect the amount of tax you owe to be greater than your expected refund when you file your 2021 tax return; if your income in 2021 is too high to qualify for the credit; if someone else (like an ex-spouse or family member) qualifies to claim your children as dependents in 2021; or if your main home was outside of the United States for more than half of 2021.

Whether you're trying to avoid owing tax to the IRS or your family just prefers to get the entire credit as a refund when you file your 2021 taxes, you can unenroll using the Child Tax Credit Update Portal rather than keep receiving these advance payments. Since the payments being made now are an advance of the Child Tax Credit you would normally get on your 2021 taxes, every dollar you receive reduces the amount of Child Tax Credit that you'll claim on your 2021 return. This means that the amount of your refund might be reduced or the amount of tax you owe could be increased by receiving them now.

To stop the advance payments, you must unenroll 3 days before the first Thursday of next month. To stop all payments starting in August, you must unenroll by August 2, 2021. You don't need to unenroll every month; it's a one time deal, and while you can't re-enroll at this time once you opt-out, you will be able to re-enroll starting in late September. Finally, remember that if you're married filing jointly, your spouse also needs to unenroll. If only one of you unenrolls, you'll still get half of the joint payment you were supposed to receive together.

Advance Child Tax Credit Payments FAQs

Here are links to the IRS' frequently asked questions about Advance Child Tax Credit Payments in 2021:

Resources & Sources:

Child Tax Credit Update Portal

Non-Filers: Submit Your Information

Advance Child Tax Credit Eligibility Assistant

Understanding Your Letter 6416 or Letter 6416-A

Understanding Your Letter 6417

Advance Child Tax Credit Payments in 2021 - latest information on the Child Tax Credit and advance payments

"The Child Tax Credit" (whitehouse.gov)