More families will now be eligible for the Child Tax Credit.
The recently passed third stimulus relief package, known as the American Rescue Plan, expanded the Child Tax Credit. Beginning with your tax year 2021 taxes (the ones filed in 2022) the age limit and the amount of the credit will be increased and it will become fully refundable – meaning you’ll be eligible for the benefits even if you don’t owe taxes.
How much will families with children get with the new Child Tax Credit?
Starting in 2021 (the taxes you file in 2022) the plan increases the Child Tax Credit from $2,000 up to:
- $3,600 for each qualifying child under 6
- $3,000 for each qualifying child age 6 to 17
This is the first time that families with children age 17 will be eligible for this credit.
Who is eligible to get the new expanded Child Tax Credit?
You may be eligible for the full amount of the credit if you have an eligible child and meet one of the following qualifications:
- Parents with a single filing status or married filing separately making up to $75,000 a year,
- Parents filing married filing jointly or a parent filing as a surviving spouse, earning up to $150,000 a year,
- Parents filing as head of household earning up to $112,500
If you have income above these amounts, the credit will be reduced by $50 for each $1,000 that your Modified Adjusted Gross Income (MAGI) exceeds these thresholds.
For example, a couple using the filing status married filing jointly with a child between the age of 6 to 17 and earning $160,000 would still receive the CTC credit but $500 ($10,000/$1000 x $50 = $500) would be phased out.
Families who are not eligible for the expanded $3,000 or $3,600 credit because they earn higher than the modified adjusted gross income mentioned above may still be able to claim the Child Tax Credit up to $2,000 under the existing tax provision for each qualifying child under 17. This credit amount is still available to individuals earning up to $200,000 or married couples filing jointly earning up to $400,000.
**Note, Adjusted Gross Income (AGI) is your gross income like wages, salaries, or interest minus adjustments for eligible deductions like student loan interest or your IRA deduction and can be found on line 11 of your 2020 Form 1040. Modified Adjusted Gross Income (MAGI) is your adjusted gross income with certain deductions like student loan interest added back in. Some deductions are rare so it is possible for your AGI and MAGI to be the same.
How do I claim the new expanded Child Tax Credit?
Although this credit is for next year’s tax filings filed in 2022, the IRS may allow the Child Tax Credit to be sent in advance, over the course of the year, beginning no earlier than July 2021. If this occurs, we anticipate that the IRS will likely determine eligibility based on your most recent processed tax filing. We will update this information as we learn more about the IRS’s plans for distribution of funds.
What about family abroad?
The American Rescue Plans extends the Child Tax Credit to U.S. territories. This allows families in Puerto Rico, including those with fewer than three children, to benefit from the credit by filing directly with the IRS.
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Katharina Reekmans is an Enrolled Agent and a contributor to the TurboTax Blog team. Katharina has years of experience in tax preparation and representation before the IRS. Her passions surround financial literary and tax law interpretation. She has a strong commitment to using all resources and knowledge to best serve the interest of clients. Katharina has worked as a senior tax accountant, operations manager, and controller. Katharina prides herself on unraveling tax laws so that the average person can understand them.