What is the Enhanced Child Tax Credit?

June 28, 2021 | Article

By Jay Heflin and Mel Schwarz, JD, CPA

The American Rescue Plan enhances the Child Tax Credit (CTC) for the 2021 calendar year to $3,000 per child 6-17 years old and $3,600 per child under 6 years old. The CTC is fully refundable and is available to both taxpayers who are required and not required to file tax returns.

Who Qualifies for the Enhanced Child Tax Credit?

The enhanced CTC is fully available for married taxpayers with filing joint returns and making up to $150,000; $112,500 for a family with a single parent (also called head of household); and $75,000 for single taxpayers. The enhanced CTC begins to phase-out by five cents for each dollar after these income thresholds until the CTC amount reaches the pre-2021 level ($2,000 per qualifying dependent child aged 16 or younger). The $500 nonrefundable Credit for Other Dependents amount has not changed.

The CTC fully phases-out for single filers with taxable income above $200,000 and $400,000 for joint filers. Only qualified children who are U.S. citizens are eligible for this credit.

How Will I Receive the Enhanced Child Tax Credit?

Beginning on July 15, 2021, the IRS will allow taxpayers to receive an Advance Child Tax Credit, which will be half the total enhanced CTC amount and will go out as monthly payments. The monthly payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child aged 6 through 17. The monthly payments will cease at the end of the year, for a total of six-monthly payments.

The IRS plans to issue payments via direct deposit, as long as correct bank information has been provided. If banking information has not been provided, the IRS plans to issue paper checks in the mail, starting around July 15.

The IRS plans to issue the Advance Child Tax Credit payments on:

  • July 15
  • August 13
  • September 15
  • October 15
  • November 15
  • December 15

For eligible taxpayers, no additional action is required to receive the enhanced CTC if they have already filed, or plan to file, their 2019 or 2020 income tax returns. The IRS will send an Advance Child Tax Credit payment if the taxpayer, or spouse if filed jointly, included a Social Security number (SSN) or an IRS Individual Taxpayer Identification Number (ITIN) when they filed their 2020 tax return or their 2019 tax return. The IRS states the “Advance Child Tax Credit payments will be made for each qualifying child who has an SSN that is valid for employment in the United States.”

Taxpayers not required to file a tax return with at least one qualifying child and earning less than $24,800 as a married couple, $18,650 as a Head of Household, or $12,400 as a single filer, can use the IRS Non-filer Sign-up Tool to receive the enhanced CTC. Individuals (or couples) who fit this description must supply the following information to receive the Credit:

  • Child’s (or children’s) SSN
  • Adults’ SSN or ITIN
  • A reliable mailing address (this address can be of a trusted person and not the taxpayer).
  • E-mail address
  • Bank account information, for direct deposit payments. A check will be mailed to those with no bank account

Non-filers who used IRS.gov in 2020 to register for an Economic Impact Payment are eligible for the enhanced CTC monthly payment. Again, no additional action is required for these people to receive the payment.

Will the Enhanced Child Tax Credit Be Available in Other Years?

While the current enhanced CTC expires at the end of the 2021 tax year (in 2022, the credit reverts to its prior-law levels), there are efforts on Capitol Hill and at the White House to extend it into future years. At this point, it is not clear if these efforts will be successful.

Do I Have to Take the Enhanced Child Tax Credit?

A word of caution: some tax professionals are urging their clients to opt out of receiving this payment because their incomes might exceed the qualifying threshold for 2021, requiring additional tax payments when they file their 2021 returns next year.

The IRS has created a webpage for taxpayers who want to opt out of receiving these payments.

The American Rescue Plan will affect businesses and individuals. Planning can start now.

This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.

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