2021 Child Tax Credit and the Phaseouts | How much will I get ?

How big will your child tax credit be on your 2021 tax return? How much will you get each month in advance payments?

Big changes that will help American families were made to the child tax credit for 2021. The two most significant enhancements impact the credit amount and how parents receive the credit. First, the new law increases the credit amount from $2,000-per-child to $3,000-per-child ($3,600 for children 5 years old and younger) for the 2021 tax year. Second, it authorizes advance payments to eligible families from July to December. Half the total credit amount will be paid in advance with the monthly payments this year, while the other half will be claimed on the tax return you’ll file next year. (These change currently apply only to the 2021 tax year, but President Biden wants to extend them beyond this year.)

However, not everyone will get the additional credit amount. And some families won’t get any credit (or monthly payment) at all. That’s because the credit is reduced –possibly to zero – for certain high-income Americans. In fact, there are two “phase-out” rules to contend with this year – one just for the extra $1,000 (or $1,600) amount and one for the remaining credit. That makes calculating the total credit and monthly payments extra complicated.

But don’t worry – we’ve got you covered. If you want to see how much money you’ll get, simply answer the four questions in the calculator below and we’ll give you a customized estimate of the amount you’ll receive each month in advance from July to December and how much you’ll be able to claim as a child tax credit on your 2021 tax return. It’s that easy!

Pre-2021 Child Tax Credit Amount

For the 2020 tax year, the child tax credit was $2,000 per qualifying child. It was gradually phased-out (but not below zero) for joint filers with a modified adjusted gross income (AGI) of $400,000 or more and for other taxpayers with a modified AGI of $200,000 or more.

(For purposes of the child tax credit, modified AGI is the amount of adjusted gross income shown on Line 11 of your 2020 Form 1040 or Line 8b of your 2019 Form 1040, plus any amount excluded from gross income on your tax return as foreign earned income; foreign housing expenses; or as income from sources within Puerto Rico, Guam, American Samoa or the Northern Mariana Islands.)

New Phase-Out Scheme for 2021

For 2021, the increase (i.e., the extra $1,000 or $1,600) is gradually phased-out for joint filers with a modified AGI of $150,000 or more, head-of-household filers with a modified AGI of $112,500 or more, and all other taxpayers with a modified AGI of $75,000 or more. However, the increase can’t be reduced below zero (other limitations to this reduction will apply as well).

After any reduction of the increased credit amount is calculated, the pre-existing phase-out is then applied to the remaining credit amount. So, for joint filers with a modified AGI of $400,000 or more and other taxpayers with a modified AGI of $200,000 or more, the credit is subject to an additional reduction – possibly to $0.

Monthly Payments in 2021

Once the credit amount is determined, 50% of it will be paid in advance with monthly payments. But those monthly payments will only run from July to December 2021. (The payments will be made on July 15, August 13, September 15, October 15, November 15 and December 15.) The remaining 50% will be claimed as a credit on your 2021 tax return.

The IRS built online tools that will let people update their income, marital status, and the number of qualifying children. Right now, you can go online and opt out of the monthly payments if you want to take the full child credit on your 2021 return instead. You can also make changes to your bank information for monthly payments beginning in August. Parents who aren’t required to file a tax return can also go online to sign up for monthly payments.

 

Contact our office if you have any questions or need further assistance.