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The American Rescue Plan’s Enhanced Child Tax Credit

The American Rescue Plan includes an enhanced Child Tax Credit (CTC) with increased credit amounts, advance payments to taxpayers beginning in 2021, and broader scope.

Increased Amount

The child tax credit has increased from $2,000 to up to $3,600. Qualifying children under the age of 6 on December 31, 2021 will receive the maximum $3,600. Qualifying children between ages 6-17 will receive $3,000. The credit is reduced, or phased out, when the modified adjusted gross income from the most recent federal income tax return is over $150,000 (married couples filing joint), $112,500 (heads of household), and $75,000 (all other taxpayers). The modified adjusted gross income is equal to the adjusted gross income from the most recent tax return plus any foreign income, Puerto Rico income, or American Samoa income. For more information regarding the CTC calculation, you can check out the Forbes’s “Child Tax Credit Calculator”.

Advance Payments

The IRS will be making advance payments regularly beginning July 1st until December 31st to taxpayers claiming a “qualifying child” dependent on either their 2020 or 2019 tax return. Eligible taxpayers must also have a main home in the United States for more than half the 2021 tax year. Payment amounts will be up to 50% of the total 2021 CTC calculated. Taxpayers can elect to decline receiving advance payments. The IRS urges those taxpayers needing to update information, such as the birth of a child in 2021, to follow “Advance Child Tax Credit Payments in 2021” for more guidance.

Credit Scope

As mentioned earlier, the cutoff age has changed to include qualifying children younger than 18 on the last day of the tax year, or December 31st of 2021. Under new law, the CTC is fully refundable, meaning taxpayers can still benefit from the full credit amount even if they don’t have any earned income or owe income taxes (previously nonrefundable CTC was limited based on these amounts). The CTC has also expanded to include families residing in Puerto Rico and the U.S. Territories.

 

For more information about the enhanced CTC and to stay up to date regarding advance payments please follow “Advance Child Tax Credit Payments in 2021”.

Parent eligibility for the child tax credit can be found by visiting “The child tax credit benefits eligible parents”.

Information regarding modified adjusted gross income and CTC limits is available at IRS Publication 972.