Child Tax Credit: What you need to know

On July 15, the Treasury Department will begin to issue temporary monthly payments for the Child Tax Credit of up to $300 per month to qualifying families with children under 6 years old, and $250 to qualifying families with children between the ages of 6 and 17. The size of the payments may be reduced based on income levels. Payment on the full credit amount is available to married couples who file taxes jointly, have children and have an adjusted gross income of less than $150,000, or single individuals who have adjusted gross income of $75,000 or less. The credit amount begins to phase out once the adjusted gross income exceeds these thresholds.

Sarah Daya is a Vice President covering the Eastern Region for J.P. Morgan Wealth Management's Wealth Planning & Advice team. She also worked at the IRS for over a decade. We asked her to give us the details on this new tax credit.

The American Rescue Plan Act, enacted in March 2021, expanded the Child Tax Credit for 2021. Prior to the expansion, the credit amount was limited to $2,000 per child, under the age of 17 and you had to wait until you filed your tax return to receive payment on it - meaning, to receive a credit in 2020, you had to wait until you filed your 2020 return in April 2021 to receive the payment. The new law increases the amount of the Child Tax Credit and  makes it available for 17-year-old dependents. It also makes it possible for families to receive up to half of it in advance during the second half of 2021–meaning these families will not have to wait until April 2022, when they would file 2021 returns to receive this half of the payment.

Under the new law, the maximum Child Tax Credit a qualifying family or qualifying individual  is entitled to is $3,600 per child for children under the age of 6 and $3,000 per child for children between the ages of 6 and 17. Up to half of this amount will be paid in advance over the next six months. For qualifying families getting the full credit amount, they will receive a  payment of $300 a month per child under the age of 6 and $250 a month per child between the ages of 6 and 17.

The full credit is available to married couples who file taxes jointly, have children and have an adjusted gross income of less than $150,000, or single individuals who have adjusted gross income of $75,000 or less. The credit begins to phase out once the adjusted gross income exceeds these thresholds.

According to the IRS, most families don’t need to take any action to get their payment. The IRS will calculate the payment amount based on the 2020 tax return. If the 2020 tax return is not available, it will be calculated based on the 2019 tax return. For those who are not required to file a 2020 return and did not file during 2019, the IRS has a portal on its website where they can apply.

The Child Tax Credit was created in 1997 and has increased over the years, most recently in 2017 where it was increased from $1,000 to $2,000 for children under the age of 17.

The new law also makes the credit fully refundable, meaning even if you have no tax liability for the year, you are able to get payment for the full credit amount. Under the old law, if your tax liability was $0, you were only able to receive a portion of the credit amount.

Statistics have shown that children in families with low income, a disproportionate amount of whom are children of color, have been particularly hit hard by the pandemic and the economic and educational setbacks that have come with it. According to the latest data from the Center on Budget and Policy Priorities, the expansion of the Child Tax Credit would lift 9.9 million children above or closer to the poverty line, including 40% of children in Black and Latinx families and help alleviate some of the economic disruptions caused by the pandemic.

View Disclosures