Due to the American Rescue Plan, enacted March 2021, the 2021 child tax credit was raised from $2,000 per child to $3,600 for children 5 and under and $3,000 for all other ages. Additionally, this year’s credit is fully refundable – the $2,500-of-earned-income requirement is dropped. Another big change is half of the 2021 credit amount was paid in advance by the IRS to taxpayers in monthly automatic deposits from July 15 through December 15.
While good news for many, the additional amounts of $1,000 and $1,600 is reduced, potentially to zero, for higher-income families. The phase out starts at incomes above $75,000 for individuals, $112,500 for head-of-household filers and $150,000 for married couples filing jointly. If you fall into these income categories or had other changes, such as an ex-spouse claiming this year’s credit, and you received the automatic payments, you may be required to pay back those payments. Now may be a good time to plan ahead with so Tax Day doesn’t come as a shock.
You will receive a letter from the IRS in January 2022 stating the total amount of the advanced payments you received. You can also see your payments by visiting the IRS Child Tax Credit Portal: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021. For additional information on how to reconcile the tax credit payments you received with your 2021 tax return click here. You can also visit a blog we posted earlier this year which has more detailed information.