Child tax credit 2021 passes Senate, teeing up more money than the stimulus check

March 7, 2021 0 By boss

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Families with children in need of money could see some help soon. 


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New rules around the child tax credit could bring families thousands of dollar in 2021. On Saturday, the Senate passed a revised version of the $1.9 trillion stimulus bill, leaving the provisions for the child tax credit intact even while changing some major qualifications around how the $1,400 stimulus check is calculated (estimate your total payment now) and rewrites to the federal weekly unemployment benefits.

While the $1,400 stimulus checks included in the bill may grab the headlines and deliver money quickly, the package’s expansion of the child tax credit could mean more money for many families over time. The current version of the bill increases the existing child tax credit, or CTC, to up to $3,600 per child (more than double the $1,400 per dependent in the stimulus check), and would let families receive the funds “periodically” instead of annually during tax season. The bill would work to make sure lower-income families receive the payments. This increase in the CTC would reduce child poverty by 40%, according to a report from the Center on Budget and Policy Priorities

At a basic level, the CTC is a credit parents and caregivers can claim to help reduce their tax bill, depending on the number and ages of their dependents. For many, it may provide a much-needed source of relief as part of a 2020 tax year refund. Here’s everything you need to know about the CTC, including eligibility requirements for you and your kids, how much money you could get and what all could change in a final law. (Here’s every way caregivers can benefit from a new bill.) This story was updated with new information.

What is the Child Tax Credit? 

The CTC right now is a $2,000 credit parents can claim on their taxes for every child under the age of 17 (the same age range for child dependents when it comes to the first and second stimulus checks). And if that credit exceeds the amount of taxes that a family actually owes, parents can still receive up to $1,400 of the balance as a refund; this is technically referred to as the “Additional Child Tax Credit” or refundable CTC. For example, a married couple with children ages 5, 10 and 12 would receive a total child tax credit of $6,000 — unless they’re due a refund, in which case they would receive $4,200. 


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Who would be eligible for the Child Tax Credit in 2021?

Families with kids under 6 would receive up to $3,600 per child. Families with children aged 17 and under would receive a credit of $3,000 per child. Families with older kids are also eligible: You can claim $500 for each child aged 17 and 18, or full-time college students between the ages of 19 and 24.

The tax credit applies to children who are considered related to you and reside with you for at least six months out of the year.

Note that although the eligibility requirements are relatively broad, higher-income families may receive a reduced credit. But married couples filing jointly with an adjusted gross income (AGI) under $400,000 are eligible for the full amount, as are individuals with an AGI under $200,000. 

The size of the credit would start to phase out for single people earning more than $75,000 a year, $112,500 for heads of household, and married couples earning more than $150,000 a year. 

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With the Child Tax Credit for 2021, you could more than one check this year.


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How else will the new relief bill change the Child Tax Credit?

In addition to new qualifications and payment amounts, the American Rescue Plan Act of 2021 would expand the tax credit so that:

  • The credit would be fully refundable
  • It would remove the dollar cap and earnings limits that prevent many low-income families with children from receiving the full credit, according to the Center on Budget and Policy Priorities
  • Payments would be sent monthly over the course of a year, starting in July to December 2021, instead of once during tax season.

The bill also would also expand other child-related credits so families could claim up to half of their child-care expenses on their taxes.

For the bottom 20% of families in terms of income, the proposed expansion of the CTC would increase income by an average of 9.7% — even higher if you only consider tax filers with children, according to the Institute on Taxation and Economic Policy. The proposal would also lift 4.1 million children above the poverty line, cutting the number of children in poverty by more than 40%, the Center on Budget and Policy Priorities found. 

Would the Child Tax Credit be based on 2019 or 2020 taxes?

It would likely depend. The IRS will be tasked with basing your eligibility for the Child Tax Credit off your 2020 tax return, if that’s been processed by the first July payment. Otherwise — in the case of a tax return extension, for example — the agency would use your 2019 taxes to determine the amount you’re owed.

How long would the new Child Tax Credit last?

The Child Tax Credit for 2021 is considered a temporary reprieve for the year and would last only through 2021. Any changes to a 2022 CTC would need to take place in a separate bill.

For more information, here’s everything in the 2020 stimulus bill, when the stimulus check could arrive, and how to calculate how much money you’d get in a third check.

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