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The Expanded Child Tax Credit

The Expanded Child Tax Credit

| September 06, 2021
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The federal government has upgraded its Child Tax Credit.

Thanks to the American Rescue Plan Act, there are four notable differences in effect for the 2021 tax year only.1

First, the Internal Revenue Service is paying many families who qualify for the CTC 50% of their credit before 2021 ends. Second, the credit has grown larger for most eligible families: $3,000 per child, $3,600 per child under age 6. Third, this year’s CTC is fully refundable. Fourth, the credit has been extended to 17-year-olds for the first time – that is, children who turn 17 in 2021.1,2

Remember, this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your tax or legal professionals if you have any questions about the CTC or how it operates. 

All this comes with a caveat. Some families may end up getting a bigger CTC than they should, and they may have to pay some of it back. Certain households may see their adjusted gross incomes (AGIs) rise for 2021, to the point where they may be eligible for less of the CTC than the I.R.S. has paid out to them.2

CTC payments are going out in monthly increments through December. Eligible families are receiving $250 a month for each child aged 6-17 and $300 a month for each child under age 6. A small number of CTC recipients are opting for a lump-sum payment that the I.R.S. will send them in 2022, after they file their 2021 federal tax returns.2

High-income families might get less. Phase-outs apply for this year’s expanded per-child credits of $3,000/$3,600. As a result, affluent households might only receive the standard $2,000-per-child credit in six monthly increments rather than the enlarged one.2

Phase-outs will kick in for single filers with modified adjusted gross income (MAGI) greater than $75,000, heads of household with MAGI greater than $112,500 and joint filers and widows/widowers with MAGI greater than $150,000. For each $1,000 (or fraction thereof) that the taxpayer’s MAGI exceeds the applicable threshold, the taxpayer’s CTC is reduced by $50.3

Some divorced parents have opted for the lump-sum payment in 2022. Here, the risk of taking the monthly payments is that if one parent claimed a child in 2020 but doesn’t in 2021, they may get CTC credits in 2021 that they have to pay back in 2022.2

Keep in mind that tax rules are constantly changing, and there is no guarantee that any of these CTC changes will be carried over into future tax years. If you have any questions, please reach out. We may have some resources that can help answer some of your questions.



This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1. Kiplinger.com, July 14, 2021

2. CNBC, June 30, 2021
3. Internal Revenue Service, July 30, 2021

 

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