Changes to the Child Tax Credit

Paper with child tax credit
By Alexis Wilson
 
The first round of advance payments have been sent, but many questions linger about changes to the Child Tax Credit (CTC).
 
For the 2021 tax year, temporary changes related to the CTC were signed into law that is important for those who might be eligible. These changes include a broadened age range of a qualifying child, a larger maximum CTC, a full refund of the credit, and advanced payments of the credit. The following explains these changes in detail:

Age of Qualifying Child

The age of a qualifying child has been increased for the 2021 tax year from 16 and younger to 17 and younger. A qualifying child is defined as any under-age-17 child who can be claimed as a dependent for the year.

Maximum Child Tax Credit

The maximum CTC available for 2021 has increased to $3,000 per qualifying child or $3,600 for children 5 and under as of December 31, 2021. The phase-out rules for these increased amounts begins when Modified Adjusted Gross Income (MAGI) reaches the following amounts:
 
• Single taxpayers: $75,000
• Married joint filers: $150,000
 
The credit is phased-out by $50 per $1,000 of MAGI exceeding the above thresholds. 
 
If a taxpayer is not eligible for the increased credit, they are still able to receive the regular $2,000 credit which is subject to the same phase-out rules with the following MAGI thresholds:
 
• Single taxpayers: $200,000
• Married joint filers: $400,000

CTC Refundable for Eligible Taxpayers

The CTC for 2021 is fully refundable if you or your spouse have a principal residence in the US for more than half of the year or if you are a bona fide resident of Puerto Rico.

Advance CTC Payments

Another big change implements monthly advance payments of the credit starting this month, July, through December 2021. The advance payments will total 50% of the taxpayer’s allowable CTC for 2021. The estimated allowable CTC will be based on the taxpayer’s 2020 personal tax return or their 2019 return if 2020 has not yet been filed.  

Please contact Alexis Wilson or any member of the Baker Holtz team at 616-458-1835 if you have any questions regarding the changes to the Child Tax Credit.