ARPA (the American Rescue Plan Act), has made a significant change to the child tax credit. THIS ONLY AFFECTS THE 2021 YEAR!

  • The child tax credit has been increased from $2000 to $3000 per child. If the child is under the age of 6 as of the close of the year, the credit is increased by an additional $600 making it $3600, not the original $2000.
  • The age limit for the child tax credit is raised from “under age 17” to “under age 18”. This means that the child must be under age 18 by 12/31/2021. If your child turns 18 at any point during the 2021 year, you will not get the extra money for this child.
  • Starting July 2021 through December 2021, the IRS will be sending advanced payments. Remember, this is an ADVANCE on the credit you would get on your 2021 tax return.
  • You have the option to opt out of the advanced credit. Go to irs.gov and look for the Child Tax Credit Update Portal to opt out of the advanced payments.

 

Example: John and Mary have 4 children on their tax return. Jimmy is age 10, Johnny is age 9, Eva is age 4 and Jasmine is age 2.

On the 2020 tax return: They would’ve received $8000 as their child tax credit on their 2020 tax return.

On the 2021 tax return: Considering the ARPA changes, they would receive $13,200 as their child tax credit on their 2021 tax return.

  • Starting July 2021, the IRS is going to send them “ADVANCED” payments (1/2 of the total 2021 credit amount over 6 months). They will receive $1100 monthly (July – December). When they file the 2021 tax return, they will get $6600 of the leftover credit for a total credit of $13,200.
  • If John and Mary decide to opt out on the advanced (monthly) payments, they would receive $13,200 on the 2021 tax return.