In response to the Covid-19 pandemic, we saw a flurry of activity from our federal government to assist in our economy's recovery. - The American Rescue Plan Act of 2021, signed into law on March 11, 2021 was one such piece of legislation. The discussion below is focused on the Act's temporary expansion of the child tax credit for 2021 only.
The child tax credit for 2021 is enhanced in comparison to the 2020 credit. The credit amount significantly increased and the IRS made advanced monthly payments to qualifying families from July through December 2021.
When you file your tax return for 2021, you will have to reconcile any advance payments you received with the actual child tax credit you are entitled to claim.
First a look at the 2020 Child Tax Credit
For 2020 the child tax credit was worth $2,000 per child under the age of 17 claimed as a dependent on your tax return. The credit began to phase out if you modified adjusted gross income (MAGI) exceeded
$400,000 (if married filing jointly, MFJ) or $200,000 (Single filers). The credit amount was reduced by
$50 for each $1,000 of AGI over the applicable threshold amount.
2021 Child Tax Credit
The temporary for 2021 only credit expansion included:
- Allows 17-year-old children to qualify for the credit
- Increases the maximum credit to $3,000 per child ($3,600 for a child under age 6)
- Requirement for half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021 (for those wondering why 'that monthly deposit' from the U.S. Treasury stopped in January 2022…)
Not all families with children will get the higher child tax credit for 2021, but most do. The enhanced portion of the credit (the amount over $2,000) begins to phase out at MAGI's of $75,000 (Single Returns) and $150,000 (MFJ).
The amount of the credit is reduced by $50 for each $1,000 of MAGI over the applicable threshold limit. Note that this phaseout is limited to the $1,000 or $1,600 (for children under age 6) temporary increased credit for 2021 and not to the $2,000 credit.
Note that many families who aren't eligible for the higher child tax credit may still be eligible for the
$2,000 child tax credit when they file their 2021 tax return. (Those families phased out of the enhanced 2021 credit are still eligible for a $2,000 per child tax credit if MAGI is less than $400,000 (MFJ) or
$200,000 (all other filing statuses)
The other general rules that apply to the child tax credit continue to apply, such as:
- Child must be a U.S. citizen, national or resident alien and have a social security number
- You must also claim the child as a dependent on your tax Child's name, date of birth and social security number must be included on the return.
- Child must be related to you and generally live with you for at least six months of the year
2022 Child Tax Credit - under current law, we revert back to the 2020 rules.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
LPL TN: 1-05253815