This article was last updated on March 1
[Updated following finalization of Legislative Bill] In response to providing support to families during the COVID pandemic, President Biden and the Democrats have draft legislation via the ARP Stimulus package to expand the current Child Tax Credit (CTC) to $3,000 annually per child (or $250 monthly) between the ages of 6 and 17, while increasing it to $3,600 for children under the age of 6 (infants), equivalent to $300 monthly. The IRS will make these payments on a monthly basis versus eligible recipients having to claim the credit via their tax return on an annual basis.
Currently the CTC is $2,000 per eligible dependent child under the age of 17. The credit begins to phase out for those whose incomes (AGI) is above $200,000 (singles)/$400,000 (joint return). Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these people must also have earned income of at least $2,500 to get a refund.
2021 CTC Changes
The new Biden stimulus package would make the following temporary changes to the CTC payments in 2021
- Expands eligibility to 17-year-old children (vs 16 or under per current CTC rules)
- Increase the credit to $3,000 per child older than 6 and $3,600 per child under the age of 6.
- Remove the $2,500 earned income minimum requirement.
- The CTC would be fully refundable.
- Half of the credit to be paid in advance between July 2021 to December 2021 (you would need to show it as paid in your 2021 tax return filed next year)
While funding for the above (around $120 billion) has yet to be approved by Congress as part of Biden’s COVID relief bill, it would only be a temporary increase. Further the income eligibility rules may be adjusted (similar to stimulus checks) to ensure the increased amount reaches the families who need it the most. A similar increase is also proposed to the Earned Income Tax Credit (EITC).
Note that the above payment would be in addition to the $1400 dependent stimulus check (economic impact payment) that is also in the latest stimulus bill. So in total some families could be getting close to $5000 per child in 2021 with these two payments! See more in this video on how some families could get up to $10K with these credits.
Special Monthly CTC Income Qualification Thresholds
The amount of the credit allowable shall be reduced by $50 for each $1,000 (or 5% of credit) for Taxpayer’s Income (MAGI) exceeds the maximum credit threshold amount.
|2019 or 2020 Tax Filing Status||Income Below Which Full CTC Is Paid (5% Phase-out applies after this)|
|Single or Married filing separate||$75,000|
|Head of household||$112,500|
|Married filing jointly||$150,000|
2020 or 2019 Tax Year Data
The IRS will use 2019 or 2020 tax data (file your tax return via TurboTax) to ensure the latest dependent and payment information can be used. However any dependent 17 or younger at the end of 2021 is eligible for the expanded CTC, which is considered an advanced refundable credit against your 2021 taxes. You won’t have to pay taxes on it, but can also be claimed in your 2021 return as a recovery rebate credit if you don’t get it for some reason this year.
Families that aren’t eligible expanded CTC due to income levels or other reasons would still be able to claim the regular CTC credit of $2,000 per child, less the amount of any monthly payments they got, provided their 2020 AGI is below the current thresholds ($200,000/$400,000).
More to come as the legislation is passed through Congress and I will update with more information