Child Tax Credits

by Keegan Linscott & Associates

As you may have heard there have been some changes to the Child Tax Credits for the 2021 tax year. The credit amounts have increased and those that qualify are being automatically enrolled in The Advance Child Tax Credit payments. These payments are early payments of 50% of the estimated Child Tax Credit that is ordinarily claimed when the tax return is filed at the end of the year. The IRS will issue these payments based off the dependents and income listed on your 2020 or 2019 tax return, whichever was the most recent return processed. The IRS will also take into account information entered into the Non-Filer tool used for the Economic Impact Payments on IRS.gov in 2020. If you are currently not required to file a tax return, and you did not register for the Economic Impact Payments (stimulus checks), the IRS has created a Non-Filer Tool specifically for the Child Tax Credit payments which can be found here.

To be eligible for these advanced payments a taxpayer needs to meet the following conditions:

  • You have a qualifying child who will be under 18 at the end of 2021 (if you’re unsure if your child meets the criteria to be claimed as a dependent, please contact our office)
  • You have a main home in the US that you lived in more than half of the year

Previously, the Child Tax Credit was $2,000 per qualifying child, which was taken as a credit when the tax return was filed. For tax year 2021, the Child Tax Credit is increasing to $3,600 for each child 5 and under at the end of 2021, and $3,000 for each child ages 6 through 17 at the end of 2021. Whatever credit amount you are entitled to, 50% of that will be paid out over the next six months. However, the total credit amounts are reduced once your income reaches certain levels as outlined below:

Filing Status Modified AGI Credit Amount
Single / Married Filing Separate $75,000 or less
More than $75,000 but less than $200,000
More than $200,000
Full Credit
Partial credit* (can only be reduced down to $2,000)
Partial credit* (can be reduced to zero)
Head of Household $112,500 or less
More than $112,500 but less than $200,000
More than $200,000
Full Credit
Partial credit* (can only be reduced down to $2,000)
Partial credit* (can be reduced to zero)
Married Filing Joint $150,000 or less
More than $150,000 but less than $400,000
More than $400,000
Full Credit
Partial credit* (can only be reduced down to $2,000)
Partial credit* (can be reduced to zero)

*Credit is reduced by $50 for each $1,000 (or fraction thereof) by which your income exceeds the threshold described above

Please note that if you receive more of the credit than you were entitled to based on your income levels, these amounts will be subject to repayment when you file your tax return. Additionally, if you rely on the Child Tax Credits to help offset tax owed when you file, the advanced payments will reduce the amount of the credit you are able to claim on your return. So you may owe more tax, or receive less of a refund than you have in the past.

If you are divorced, generally the custodial parent will claim the child on their tax return, other times the parents will alternate years in which the child is claimed. Ultimately, whichever parent can claim the child for 2021 is the parent who is eligible for the advanced payments. However, the IRS is basing these payments on dependents reported on 2020 tax returns (or 2019, if 2020 is not yet filed), so you will want to visit the IRS payment management portal listed below to make the appropriate changes. Please note that if the parent who is not eligible to claim the child for 2021 receives the advanced payments, they will likely have to repay the money when they file their return.

If you would like to opt out of the advanced payments (and instead receive the full amount credit on your tax return), or if you need to update the IRS on changes during the year, the IRS has created a payment management portal. This will be particularly imperative for anyone who has had a baby in 2021, parents with children who turn 18 in 2021, and those whose income has increased above/decreased below the listed thresholds. In any of these cases, you’ll want to log in to the portal to update your information so that payments can be adjusted accordingly. If you are married filing jointly, and would like to opt out of the payments, both spouses will need to log in to the portal to unenroll. The first round of payments will go out 7/15.

Similar to the Economic Impact Payments, there are scam artists that will try to use these payments as a scheme to obtain personal information and money. Please know that the IRS will never initiate contact via text messages, emails, or social media to request personal or financial information. Any request for information other than through an IRS.gov site is a scam and should not be used.

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