The information provided on this page is for educational and informational purposes only. It is not, and should not be taken as, legal, financial, or tax advice.
The Child Tax Credit is a tax deduction that parents use to reduce the income tax that they pay each year. Parents of children up to 17 years of age were able to deduct $3,600 per child from the amount that they owe on their income taxes when they file. This would reduce the amount of income tax they owed the government.
If they earned at least $2,500 in income and did not owe taxes, a portion of the Child Tax Credit was refundable for the 2021 tax year. If they earned more than $400,000 if filing a federal income tax return jointly or $200,000 if filing a federal income tax return singly, then none of it was refundable.
However, Congress has changed the Child Tax Credit in a variety of ways. The new rules are part of the COVID relief provisions in the American Rescue Plan passed in March 2021. The purpose of the changes to the Child Tax Credit is to get more money to American families since many families have suffered financially during the COVID pandemic. The changes in the Child Tax Credit include the amount, the timing, income requirements and the amount that is refundable.
The Internal Revenue Service (IRS), the taxing agency of the federal government, is in charge of everything relating to the Child Tax Credit since it is a tax deduction. The IRS decides if you are eligible and how much money (if any) you will be getting. They are also the ones who will be distributing the money directly to American families.
Since these changes were put in place to help mitigate financial hardship from job losses and closures due to the COVID-19 pandemic, they were only valid for 2021. However, those who have not yet filed a federal income tax return for 2021 may still be able to claim the Child Tax Credit when they file.
Who Can Qualify for Child Tax Credit Payments?
The vast majority of the people receiving the Child Tax Credit are taxpayers who have previously claimed the Child Tax Credit on their tax returns. If you are a parent who has already claimed the Child Tax Credit on recent tax returns or are otherwise considered to be eligible by the IRS, you should receive several letters from the IRS in the mail. Nevertheless, some people who did not file a tax return for 2021 or 2020 or did not previously claim the Child Tax Credit may also qualify.
The basic requirements include having one or more children under age 18 with a valid Social Security number and earning less than certain income limits. If this describes you, it is important to know how to check to see if you are eligible and how to register for the Child Tax Credit if the IRS does not already have you on the list to receive it.
Learn About Child Tax Credit Payments
The maximum amount of the Child Tax Credit you can receive is $3,600 per child under the age of 6 and $3,000 per child for children ages 6-17. However, these amounts can be reduced if you make more than certain threshold income amounts. The more money you earn, the lower the amount of the Child Tax Credit you will qualify for. To be prepared, you can determine the amount you will receive based on your children’s ages and your income.
When and How Can You Receive Payments?
If you qualified for the Child Tax Credit, you likely did not receive all of the benefits of the Child Tax Credit at one time. Half of the total amount you were due should have been paid out in six monthly payments; the rest should have been paid in a lump sum when you filed your federal income tax return. These payments began getting disbursed in July 2021, but those who did not receive advance payments or did not file a federal income tax return yet may still qualify to claim it when they file their 2021 tax return.
You should get either a check in the mail or direct deposits into your bank account, depending on what you had already set up with the IRS. However, if you need to, you can set up or change your direct deposit information or address that the IRS has on file for you.
Will You Need to Pay the IRS Back?
It is possible that you could owe some of the money from the Child Tax Credit back to the IRS. This is because the advance payments you may have received were calculated assuming that when you file(d) your 2021 federal income tax return, all of the things that qualify you to receive the Child Tax Credit stay the same.
However, it is possible that if your family circumstances or income changes, you may no longer qualify. For example, your child may now be older than 17, or maybe your 2021 income was more than your income listed on the previous year’s tax return.
The Child Tax Credit and its Impact on American Households
The advance payments and increased amount of the Child Tax Credit can make a big difference to American parents. Because of jobs and other income lost during the pandemic, many families are struggling to pay overdue bills, and the money from the Child Tax Credit can help get families current with their financial responsibilities.
Tax experts estimate that the advance Child Tax Credit payments (the monthly payments) along with other parts of the American Rescue Plan will result in reducing the number of American children living in poverty by at least half, from 13.7% to 6.5%, lifting millions of children above the poverty line.
Although most Americans with dependent children will automatically get these payments, it is not guaranteed that you will receive them. Whether you get them depends on whether the IRS thinks you qualify based on the information it has from your past tax returns.
However, circumstances sometimes change and the IRS may not have current information. For example, if you have had a baby or adopted a child since you filed your 2020 taxes, you can only get the Child Tax Credit payments if you let the IRS know by registering yourself.
You might also have earned too much to qualify in 2020 but then had a drop in income in 2021 due to the pandemic or some other reason; the IRS may not think you meet the income qualifications unless you tell them otherwise.
If you are an American with children at home, it may benefit you to learn the details of the Child Tax Credit so that you will know what to expect and ensure that you get the payments if you qualify.