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

Jacob Allen

The American Rescue Plan Act of 2021 (“Rescue Plan”), signed into law on March 12, 2021, is a comprehensive law that extends and creates several different programs to aid the economic recovery related to the COVID 19 pandemic.

Unsurprisingly, the tax rebates, commonly referred to as “stimulus payments” attract the most media attention and have been widely reported on. With the bulk of attention going to stimulus payments, the law’s changes to the Child Tax Credit (“CTC”) have gone largely under the radar.

The Child Tax Credit, which prior to the Rescue Plan, was $2,000.00 per qualifying child has been changed in several significant ways.

For the 2021 tax year, the CTC has been increased from $2,000 to $3,600 for each child under the age of 6 and from $2,000 to $3,000 for children ages 6 - 17.

To qualify for the full amount of the increased CTC, you must meet the following income guidelines:

  • Individuals with income up to $75,000
  • Individuals (Head of Household) with income up to $112,500
  • Married (Filing Jointly) with income up to $150,000

The amount of the CTC is reduced if your income exceeds the above limits by $50 for every additional $1,000 in adjusted gross income. If you do not meet the income guidelines for the increased CTC, you may still qualify for the previous CTC amount of $2,000 per qualifying child (Individuals with income up to $200,000/Married (Filing Jointly) with income up to $400,000).

Another significant change is that you will now have the option to receive the CTC in advance, through direct periodic payments (likely monthly payments, but the details have not yet been worked out). So, for example, an individual with yearly income of $70,000 and a 7-year-old child will likely have the option to receive monthly payments of $250 ($3,000/12) rather than receiving the entire amount of the CTC when they file their yearly income taxes. These periodic payments are scheduled to begin in July 2021.

Importantly, these CTC changes have only been made for the 2021 tax year. It is widely believed that there will be future legislation that attempts to extend or make these changes permanent, but for now these changes only impact 2021 taxes.

If you have other questions related to the Child Tax Credit or other parts of the Rescue Plan, please contact one of our qualified attorneys or check back soon for future blog posts on the Rescue Plan.

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