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Child Tax Credit 2021 – What changed and how will that impact me?

Child Tax Credit 2021 – What changed and how will that impact me?

The Child Tax Credit is bigger this year than ever before due to the American Rescue Plan Act of 2021, the COVID relief legislation that passed in early 2021. The changes are somewhat complicated (it’s tax stuff) and won’t impact everyone. That’s why we put together a brief overview and compiled some useful resources to help you see how the changes might affect you. Please keep in mind that Gulf Winds is not a tax expert and is not offering tax advice.

 

What is the Child Tax Credit?

The child tax credit is a tax benefit granted to American taxpayers for each qualifying dependent child. The tax credit has been around for more than two decades, but it’s a little different this year with the changes implemented in the COVID relief package. If you’re not sure you are eligible for the child tax credit, check out the Child Tax Credit Eligibility Assistant on the IRS’ website.

 

What are the Major Changes This Year?

The credit amount is significantly increased this year, and the IRS will be making advanced payments to qualifying families in the second half of 2021.

1. The Credit Increased — According to the IRS, for tax year 2021, the Child Tax Credit increased from $2,000 per qualifying child to:

  • $3,600 for children ages 5 and under at the end of 2021; and
  • $3,000 for children ages 6 through 17 at the end of 2021.

2. Advanced Payments Half the total credit amount will be paid in advanced monthly payments. The IRS will issue the first advanced payment on July 15, 2021. Payments will proceed every month afterwards until December 2021. See the full schedule of advanced payments here. You will then claim the other half of the credit when you file your 2021 income tax return.

So how much might you get in advanced payments? According to the IRS, if you have a qualifying child age 5 or younger, you will receive $300 a month from July to December. That is determined by dividing the $3,600 credit in half ($1,800) and then into monthly payments. Six monthly payments of $300 equals the $1,800 total. If you have a qualifying child age 6 to 17, you will receive $250 per month.

These changes have only been accepted for the year of 2021, and there are no definite plans to extend it into 2022 and beyond.

 

What Do I Need to Do?

Not much. Most families have already received a letter notifying them that they’re eligible for child tax credits and the IRS is automatically enrolling everyone that qualifies into the advanced payments. They have a tool on their website if you want to: 

  • Check if you’re enrolled to receive payments.
  • Unenroll to stop getting advanced payments and take the credit when you file taxes for 2021.
  • Provide or update your bank account information to receive payments.
  • Submit your information if you are not required to file taxes but believe you’re qualified for the credit.

The IRS does suggest that if you have not filed a 2020 tax return, you should do so as soon as possible.

 

Learn More with These Resources

We know this change can be confusing, and you may have some deeper questions than what we cover in this article. That’s why we want to provide you with the resources necessary to answer all of the questions you might have.

IRS Eligibility Tool – Check out the Child Tax Credit Eligibility Assistant

IRS FAQs – The IRS has provided a list of FAQs which you can find here.

IRS Video – The IRS has also released a video giving a short explanation of what to expect if you are eligible for the child tax credit advance. If you would like to view the video, you can find it here.

IRS Manage Payments Tool – Check if you’re enrolled in payments, unenroll in advanced payments or provide updated bank information here.

The first monthly payment will be sent out on July 15, 2021. Gulf Winds Credit Union will be processing the direct deposits as soon as we receive them.  

 

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