Child Tax Credits: What you need to know

BUDGETING BY VALUES

Your bank account may be getting a boost in 2021: Starting in July, parents will start receiving payments from the expanded Child Tax Credit.

For as much joy as our kids bring us, they generally don't bring us extra income. But that's about to change this summer thanks to an unlikely source—the IRS.

Many parents will soon benefit from an expanded Child Tax Credit (CTC). The American Rescue Plan—the economic stimulus bill passed to help Americans recover from the pandemic—includes legislation that significantly increases the existing credit for 2021.

The tax credit has historically been $2,000 per child. But the new law increases it by 50% or more, broadens eligibility, and provides quick relief in the form of advance monthly payments.

For all you busy parents out there, here’s what you need to know. 

What’s the difference between the current and new CTC?

The existing Child Tax Credit isn’t going anywhere—it’s just expanded in scale and scope for eligible families.1 Here’s how this changes things—and when you might receive a payment. 

Standard CTC Expanded CTC
Includes children 16 and younger Includes children 17 and younger
Eligible families receive $2,000 per year per child (regardless of age) Eligible families receive $3,600 per child this year if their child is 0 – 5. It’s reduced to $3,000 if their child is 6 – 17.
Delivered in one lump sum, the credit is a refund or an offset to taxes owed. If you opt into the program, then you’ll receive half the credit amount this year from the IRS via monthly payments (July - December 2021) and the second half will be a refund or an offset to taxes owed on your 2021 tax return.
Parents or guardians have to make at least $2,500 annually to qualify You don’t have to earn any income to be eligible for the full benefit.
$1,400 of the $2,000 is refundable The full amount is refundable and uncapped, meaning there’s no limit to the number of eligible kids for which you can receive a credit.

Do I qualify for expanded CTC payments?

One of the biggest changes in eligibility for the 2021 Child Tax Credit is that low-income parents will qualify for the full benefit even if they aren’t currently employed, a change that should help more families cover more monthly expenses.

On the other hand, some higher-income households may also qualify for all or some of the expanded Child Tax Credit based on adjusted gross income (AGI) limits.

The AGI limits are:

  • $150,000 for joint-filing households
  • $112,500 for heads of household (single-filing)
  • $75,000 for single-filing households

The credit reduces by $50 for every $1,000 you earn over these limits. 

Do my kids need to meet any criteria?

Most families will be eligible to receive some kind of benefit. So if you’re a parent, you’ll probably start getting the extra cash boost starting July 15, 2021, as long as your kids are:

  • U.S. citizens, national or resident aliens, and have a Social Security number
  • Born before January 1, 2021
  • Claimed as a dependent on your 2021 tax return
  • Related to and live with you for a minimum of six months during the year2

Is it paid all at once?

Unlike most tax credits, you won’t receive the expanded Child Tax Credit as a refund or an offset to taxes owed when you file your taxes. Instead, the U.S. government is sending half the credit in six advance monthly payments—so if you’re eligible for a $3,600 credit, you’ll receive $1,800 of that between July and December 2021.

If you’d rather receive it all as a refund or an offset to taxes owed during tax season—or if you simply don’t need extra cash in hand right now—you can choose to opt out of the advance monthly payments through the IRS portal.

How much will I receive each month?

Follow this formula if you fall below the AGI limit:

For every eligible kid you have age 0 - 5:

$3,600/2 = $1,800 (total you’ll receive this year in monthly payments)

$1,800/6 = $300 (total you’ll receive each month from July to December 2021)

For every eligible kid you have age 6 - 17:

$3,000/2 = $1,500 (total you’ll receive this year in monthly payments)

$1,500/6 = $250 (total you’ll receive each month from July to December 2021)

Let’s look at some possible examples to show how payments can vary. 

Name Household type Annual income Kids Monthly advance CTC payment
Melissa Single $15,000 Three kids; ages 2, 6 and 10 $800
Jon Head of household $114,500 Four kids; twins age 1, other two ages 5 and 11 $1,142
Carrie and Sam Joint $40,000 One kid; age 15 $250

As a single mom of three making minimum wage, Melissa is eligible to receive the full amount of her tax credit: $9,600 ($3,600 + [$3,000 x 2]). She’ll get $800 per month until the end of the year—totaling $4,800 ($800 x 6). Next year, she’ll get the remaining credit—$4,800 more—as a refund or an offset to taxes owed when she files her 2021 tax return.

Jon is the head of the household he shares with his partner, and he makes more than the AGI limit of $112,500. Since the credit is reduced by $50 for every $1,000 earned over the income limit, he will receive $13,700 ([$3,600 x 3] + $3,000 – [$50 x 2]). He’ll get about $1,140 per month until the end of the year—meaning he’ll receive $6,850 this year in monthly payments, and $6,850 as a refund or an offset to taxes owed when he files his 2021 taxes.

Carrie and Sam are married and file their taxes jointly. They make less than the AGI limit for joint households, so they will receive the full amount for their only daughter: $3,000. They’ll get $250 per month until the end of the year—which comes up to $1,500 in monthly payments in 2021, and $1,500 as a refund or an offset to taxes owed when they file their 2021 taxes return. 

When and how will I get my CTC payments?

The advance monthly payments start on July 15, 2021 and arrive by either direct deposit or check, depending on what banking info the IRS has on file for you. You can change your delivery method—and the number of your dependents if you’re expecting a baby in 2021—through the IRS portal

How this program can help families

Never before has a federal program provided this much cash support to low- and middle-income families. And when combined with other major pieces in the American Rescue Plan, it’s expected to reduce childhood poverty by half and include 27 million children in the bottom 20% of the nation’s income distribution.3

Read more: 5 wise ways to use your Child Tax Credit payments

What do the CTC payments mean for your family? It could mean finally catching up on monthly bills, opening an emergency savings account, reducing debt, starting a college or daycare fund, funding a side hustle, or having enough to make a down payment on a home or car—all worthwhile goals that can make a world of difference in your financial confidence and your family’s well-being. 

1FACT SHEET: The American Rescue Plan Will Deliver Immediate Economic Relief to Families,” U.S. Department of the Treasury, March 2021.

2The Child Tax Credit: Temporary Expansion for 2021 Under the American Rescue Plan Act of 2021,” Congressional Research Service, May 2021.

3The Child Tax Credit Grows Up to Lift Millions of Children Out of Poverty,” Tax Policy Center, March 2021. 

The information contained herein is general in nature and is not intended, and should not be construed, as tax advice provided by Truist to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her tax professional prior to taking any action based upon this information. Truist assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.