2021 Child Tax Credit Changes: ARPA ACT

Changes to Child Tax Credit for Tax Year 2021 under the American Rescue Plan Act of 2021: 

The American Rescue Plan Act (March 12, 2021) made changes to Child Tax Credit for tax year 2021. The American Rescue Plan Act (ARPA) increased made several modifications to the Child Tax Credit.

• Increasing the amounts issued per child to $3,000 (children 6-17) or $3,600 (children 0-5)
• Increasing the age of eligible children to 17 (was previously 16)
• Allowing 50% of the CTC to be issued to taxpayers in advance beginning in July of 2021
• Removing the earned income requirement of $2,500
• Making the entire credit refundable

Phase-Outs For The 2021 Child Tax Credit 

Not all families will be eligible for the full higher Child Tax Credit.  The increased Child Tax Credit has two phase-outs for 2021 as follows:

1^st Phase-Out – The credit begins to be reduced to $2,000 when AGI reaches the following:

• Single filers - $75,000
• Head of household filers - $112,500
• Married filing joint filers - $150,000

2^nd Phase-Out – Remaining $2,000 credit will begin to be reduced to zero when the AGI reaches the following:

• Married filing joint filers - $400,000
• All other filing status’ - $200,000

Advance Payments of 2021 Child Tax Credit

The law calls for the IRS to send out payments (mainly in the form of direct deposits) periodically from July through December to all eligible families. These periodic payments would account for half of the family's 2021 Child Tax Credit. If monthly payments were made, this would result in payments of up to $250 per child ($300 per child under age 6) for six months.

The advance payments will be calculated based on the taxpayer’s 2020 federal return or 2019 return if the 2020 return has not been filed at the time the advance payments begin. 

Reconciliation of Advance Payments with Calculated 2021 Child Tax Credit

If the taxpayer received advance payments of the Child Tax Credit, then those payments must be reconciled on their 2021 tax return, even if they are no longer claiming the child.

The result of the reconciliation will be one of the following:

• Refundable credit – Calculated credit is greater than the advance payments received
• Additional Tax – Advance payments received are greater than calculated credit

Safe Harbor for Excess Advance Payments

For lower income families there is a safe harbor amount of $2,000 per child if the advance payments exceed the calculated credit.

Here is how it works:

Taxpayer does not have to repay an overpayment of up to $2,000 per child (safe harbor amount) as follows:

• Single – Full safe harbor amount when AGI is below $40,000. Phases out between $40,000 and $80,000.
• Married filing joint – Full safe harbor amount when AGI is below $60,000. Phases out between $60,000 and $120,000.
• Head of Household – Full safe harbor amount when AGI is below $50,000. Phases out between $50,000 and $100,000.

What If I Didn't Receive My 2021 Advance Child Tax Credit Payments?

Taxpayers who did not receive their 2021 advance Child Tax Credit Payments, who are otherwise eligible for the credit, will be able to claim the Child Tax Credit on their 2021 tax return, on SCH 8812 Line 14f.