2021 Child Tax Credit & Advance Payment Option

The American Rescue Plan Act of 2021 made important changes to the Child Tax Credit (CTC) for tax year 2021 only.

The expanded credit means:

• The credit amounts will increase for many taxpayers.
• The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
• The credit will include children who turn age 17 in 2021.
• Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return in 2022.

You must meet certain eligibility rules to claim and receive the credit. These rules, discussed in general, below, include filing a tax return even if you generally don’t have to. The amount of the credit depends on your income, filing status, and number of qualifying children.

What do I need to know?

The American Rescue Plan Act of 2021 increased the amount of the CTC for the 2021 tax year only for most taxpayers. For 2021, the credit amount is:

• $3,000, for qualifying children between age 6 to 17 years old
• $3,600, for qualifying children age 5 and under.

The increased amounts are reduced (phased out), for modified adjusted gross income (AGI) over:

• $150,000 for married taxpayers filing a joint return and qualifying widows or widowers,
• $112,500 for heads of household, and
• $75,000 for all other taxpayers.

The amount of the payments will phase out by $50 for every $1,000 (or fraction thereof) by which modified AGI exceeds the applicable threshold listed above based on your filing status.

For purposes of the CTC and advance CTC payments, your modified AGI is your adjusted gross income (from the 2020 IRS Form 1040, line 11, or the 2019 IRS Form 1040, line 8b), plus the following amounts that may apply to you.

• Any amount on line 45 or line 50 of the 2020 or 2019 IRS Form 2555, Foreign Earned Income.
• Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa.

If you do not have any of the above, your modified AGI is the same as your AGI.

In addition, the term “qualifying child” is broadened to include a qualifying child who has not attained the age of 18 (in other years, a qualifying child is one who has not attained the age of 17 by the end of the calendar year).

Also, for the 2021 tax year only, the CTC is made fully refundable for taxpayers with a principal place of abode in the United States for more than one half of the tax year or taxpayers who are bona fide residents of Puerto Rico. Other taxpayers living in U.S. Territories, must claim the credit through those Territory processes.

The IRS will automatically issue advance CTC payments of up to 50 percent of the total estimated CTC to you, monthly, between July and December 2021, unless you take action to unenroll.

Other related information:

• Advance CTC payments will not affect any government benefits that you receive, nor are they taxable.
• Advance CTC payments will not be reduced (that is, offset) for overdue federal taxes from previous tax years or other federal or state debts that you owe that the IRS would normally be obligated to collect. However, if you claim a refund when you file your 2021 tax return in 2022, any remaining CTC amounts included in the calculation of your refund may be subject to offset for federal tax debts or other federal or state debts you owe.

Eligibility for the CTC in 2021

To qualify for CTC for 2021, you and any other family members claimed, such as your spouse or qualifying child, must have a Social Security number (SSN) that is valid for employment in the United States. (See IRS Topic B: Eligibility for Advance Child Tax Credit Payments and the 2021 Child Tax Credit for more information about SSNs and Topic I: U.S. Territory Residents and Advance Child Tax Credit Payments.)

Modified AGI and Phaseouts

The CTC begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds:

• $150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
• $112,500 if filing as head of household; or
• $75,000 if you are a single filer or are married and filing a separate return.

The first phaseout reduces the CTC by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you. The CTC won’t begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:

• $400,000 if married and filing a joint return; or
• $200,000 for all other filing statuses.

The second phaseout reduces the CTC by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.

For more details about Modified AGI and the credit phaseout, see Topic C: Calculation of the 2021 Child Tax Credit.

Qualifying Child

• In general, a child qualifies you for the CTC if the child meets all of the following conditions:
  • The child is your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). Adopted children qualify too.
  • The child was under age 18 at the end of 2021.
  • The child does not provide over half of his or her own support for 2021.
  • The child lived with you for more than half of 2021.
  • The child is claimed as a dependent on your return. See Pub. 501, Dependents, Standard Deduction, and Filing Information, for more information about claiming someone as a dependent.
  • The child does not file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid).
  • The child was a U.S. citizen, U.S. national, or U.S. resident alien. For more information, see Pub. 519, U.S. Tax Guide for Aliens.

  There are special rules and exceptions that may apply to the above list. See Publication 972, Child Tax Credit and Credit for Other Dependents, for the full rules.