Beginning in 2021:
The credit for 2021 will:
- Increase from $2,000 to $3,000 for kids ages 6-17
- Increase the amount from $2,000 to $3,600 for kids under 6 years old
- Be fully refundable
- Raise the age limit to include 17-year-olds
The new credit amount will begin to phase out for single filers earning $75,000 or more, couples who earn $150,000 or more, and head of household earning $112,500 or more. If the taxpayer makes more than this amount but under $200,000 as a single filer or $400,000 as a joint filer, they will still be eligible for the existing $2,000 credit.
If the taxpayer is eligible for the new Child Tax Credit, they do not need to file their 2021 tax return to claim it. The amount will be based on the 2020 tax return (how many dependents were claimed and the AGI).
According to the IRS, "Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).
The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they're eligible for the appropriate amount of the CTC as well as any other tax credits they're eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.
Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon."
This would mean that for one child age 7, the taxpayer could receive up to $250 per month from June to December. On the 2021 tax return, the taxpayer would then claim the additional $1500 for a total of up to $3,000 child tax credit for 2021. If your child was under age 6, add $50 per month ($300) and an additional $300 on the final 2021 return ($1800).
For tax years 2020 and prior:
The Child Tax Credit is a partially refundable credit offered by the IRS that may reduce your tax liability by as much as $2,000 for each of your qualifying children. Of the $2,000, $1,400 qualifies as a refundable credit.
For example, if you qualify to receive $2,000 in Child Tax Credit but your tax liability is only $300, the Child Tax Credit can reduce your $300 tax liability to $0. Of the remaining $1,700, only $1,400 may be refunded to you as an Additional Child Tax Credit.
Unlike the Child Tax Credit, the Additional Child Tax Credit is calculated off of your earned income. You must have an earned income amount of at least $2,500 in order to receive the Additional Child Tax Credit.
How do I figure the amount of my credit?
Both the Child Tax Credit and Additional Child Tax Credit are automatically calculated within your account based on the information provided in your return. To determine if you have received either of these credits, from within your My Account screen, select the "Summary" tab from the navigation bar followed by "Show Details" next to Tax and Credits (for Child Tax Credit) and Payments (for Additional Child Tax Credit).
Who can be considered a Qualifying Child?
A qualifying child for purposes of the child tax credit is a child who meets all of the following:
- Is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew),
- Was under age 17 at the end of the tax year
- Did not provide over half of his or her own support for the tax year
- Lived with you for more than half of the tax year
- Is claimed as a dependent on your return
- Does not file a joint return for the year (or files it only as a claim for refund)
- Was a U.S. citizen, a U.S. national, or a U.S. resident alien. For more information, see Publication 519, U.S. Tax Guide for Aliens.
- Must have a Social Security number issued before the due date of your 2020 return.
If your dependent is older than 17 or does not yet have an SSN, you may be eligible for the Other Dependent Credit.
For additional information on each credit, please refer to IRS Publication 972.