PH:     (253) 752-3920
EM:     contactus@pivotalaccountant.com
>>> Your 2021 Child Tax Credit Explained HERE <<<

Reference Citation Information
In March 2021 Congress passed the American Rescue Plan Act (ARPA) which greatly expands, for 2021 only, the child tax credit in Act Section 9611. This is the credit for having dependent kids, not the dependent care credit for taking care of kids! Additionally, Act Section 7527A provides for advance payment of the child credit. The original Child Credit is contained in Internal Revenue Code Section 24. In May the IRS released Revenue Procedure 2021-24 that explained many of the rules implementing the credit for people not required to file a return.
 
Summary of old (2020) rules for the child credit
2020 individual tax returns qualified for a child credit of $2,000 for children under age 17 on the last day of the year with a social security number claimed as a dependent on the return. Up to $1,400 was refundable. The credit began phasing out at $400,000 of AGI for joint returns and $200,000 for other returns. Key points of old law:
 

  • Permanent part of law
  • Under age 17 on last day of year
  • Must be a dependent with a social security number by the due date of the return
  • $2,000 credit per dependent
  • $1,400 refundable credit per dependent
  • Credit obtained when filing return for the year

Summary of new (2021 ONLY) rules for the child credit
2021 individual tax returns qualify for a child credit of $3,000 ($3,600 if under 6 at 12/31/2021) for children under age 18 on the last day of the year with a social security number claimed as a dependent on the return. The full amount is refundable. The increased amounts begin phasing out at $150,000 on a joint return down to $2,000, which begins  phasing out at the 2020 levels as before. $112,500 and $75,000 begin the higher amount phaseouts for heads of household and single returns respectively, also dropping to $2,000 and phasing out at the 2020 amounts. This means for 2021 there is a stairstep phaseout of none up until $150k (MFJ), then partial to a $2,000 safe harbor until $400k MFJ,  and complete after that.
 
Additionally, ARPA requires the IRS to pay ½ of the credit in advance in 6 monthly payments beginning in July, 2021 for individuals maintaining a principle residence in the United States for over ½ the year. This advance payment will be estimated based on 2020 returns (2019 if not yet filed) and then reconciled upon filing the 2021 return. The IRS will have a primary portal open by 7/1/21 where taxpayers can elect out of advance payments or update their 2021 income, filing status or qualifying children. Key points of new law:
 

  • One year only (2021) change under current law
  • Under age 18 on last day of year
  • Must be a dependent with a social security number by the due date of the return
  • $3,000 per dependent
    • $3,600 if dependent is under age 6 at 12/31/2021
  • Fully refundable
  • 50% of credit paid in 6 payments in advance beginning 7/15/2021
    • Remainder refundable with 2021 return when filed

The advance credit will then be reconciled when filing the 2021 return. Any additional credits due will be refunded with the return. The advance payments are to be electronically paid using the same mechanism used to send the stimulus checks. The portals can also be used to add new babies or dependents which would increase the 2021 credit.
 
Any excess payments are taxable with the 2021 return (Act Sec. 7527A(j)(2)(A))
 
A secondary portal will be open within the month for taxpayers that did not file a 2019 or 2020 return. See the Rev. Proc.above.
 
Older dependents will still qualify for the old $500 credit, but it will not qualify for the advance payment program. Unlike the stimulus check where divorced parents might have qualified for a dependent credit, the child credit will only apply to whomever claims the child on the 2021 tax return.