Important changes to the Child Tax Credit will result in eligible families receiving advance payments starting as early as July. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit for the tax year 2021 to include increased credit amounts.
What Is the Child Tax Credit?
The Child Tax Credit is meant to help give parents of dependent children a financial break on their taxes -- keeping more money in your family’s pockets. For the tax year 2020, the credit was worth $2,000 per child younger than 17 years old.
However, President Biden’s American Rescue Plan Act has expanded the Child Tax Credit for 2021. That means that parents can expect to get additional financial breaks. Here are some of the major changes for tax year 2021:
- The credit includes children who turn 17 years old in 2021.
- Families claiming the tax credit will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021.
- Families claiming the tax credit will receive $3,600 per qualifying child under age 6 at the end of 2021.
- The credit will be partially paid in advance, rather than all at once at the end of the year.
Keep in mind that the amount you receive depends on your income. The amounts listed above begin phasing out for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.
Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns. Or, if your 2020 returns are not fully filed or processed yet, the information from your 2019 returns will be used instead.
How Does the Child Tax Credit Work?
Getting money back from the government for being a parent sounds like a great idea. But how does it actually work? It's an important question that many families are looking for the answers to, especially right now.
Advance Child Tax Credit payments from the IRS will begin in July 2021 and spread out through the month of December. The total amount paid between July and December will be 50%; you’ll be able to claim the other 50% of the credit on your 2021 tax return in 2022.
Another important aspect of the Child Tax Credit is the fact that it’s fully refundable. That means, if you’re a parent of a qualifying child, you can benefit from the tax credit even if you don’t have earned income or you don’t owe any taxes.
For example, let’s say that you’re filing your 2021 taxes next spring, in 2022. The IRS tells you that you owe $1,000 in federal taxes. But you’re a parent with two kids -- aged 5 and 8 -- and you’re eligible for the full amount of the tax credit. That means, you can get up to $6,600 in tax credits.
Half, or $3,300, will be paid out to you in advance, throughout the second half of this year. The other $3,300, you can claim on your tax return. That will reduce your owed taxes to the government to $0 -- and you get to keep the remaining $2,300.
So, how do you sign up for the Child Tax Credit? According to the IRS official website, “Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.”
However, remember that filing your 2020 tax return electronically with direct deposit also can speed refunds and future advance CTC payments. Your bank account for receiving payments must be linked to your IRS information to receive direct deposits.
Get Your Money Faster with Academy Bank
Opening an Academy Bank Simple Checking account can help you receive your Child Tax Credit payments faster through direct deposit.
Simple Checking is a basic checking account designed to meet our everyday checking needs. Not only will it help you get your tax credit more easily, it also provides a variety of digital features that are sure to make your personal banking easier.
You can take advantage of features such as online banking and free mobile check deposit1, set up account alerts2 , and get access to over 70 Academy Bank locations. It’s easy to get started! Open your checking account today.
When you’re set up with your account, here’s what you need to know about receiving Child Tax Credit payments.
- Make sure your Academy Bank account is linked to your IRS information.
- Existing customers who have received previous tax payments will automatically receive CTC payments in the same account.
- If you are opening a new account, you will need to link it to your IRS information before CTC payments can be received.
- If you had a previous account at another bank and just opened your Academy Bank account you will need to link it to your IRS information to ensure your CTC payments are received.
Academy Bank Is Working to Be Your Financial Partner
Through all the uncertainty of the past year and the pandemic, to your economic stimulus payments, to the Child Tax Credit. Academy Bank is here to help you navigate it all -- and we’re happy to do it.
Learn more about our services, including our checking and savings accounts, as well as our variety of loan and mortgage options*.
1 Deposits are subject to verification and not available for immediate withdrawal. Deposit limits and restrictions apply.
2 Message and data rates may apply – such charges include those from your communications service providers.
*Subject to credit approval.