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Notable Changes to the Child Tax Credit Under the American Rescue Plan Act

Posted on June 28th, 2021

Under the American Rescue Plan Act (ARPA) the Child Tax Credit (CTC) was temporarily expanded for 2021. The most notable changes are:

  • CTC increased from $2,000 to:
    • $3,000 for a qualifying child 6-17 years old in 2021
    • $3,600 for children under 6 years old in 2021
  • Half of the credit amount will be paid in advance payments.
  • Advance payments will be paid monthly beginning July 15, 2021 and ending December 15, 2021.

The maximum credit is available to taxpayers with a modified Adjusted Gross Income of:

  • $75,000 or less for single taxpayers,
  • $112,500 or less for heads-of-household,
  • $150,000 or less for joint filers and surviving spouses.

The increased credit is phased out at a rate of $50 for each $1,000 above the AGIs listed above.

Eligibility and phase out for advance CTC payments is determined by the 2020 returns. If a 2020 return had not been filed, the 2019 return will be used to determine eligibility. Taxpayers can check if they are eligible for advance payments using the Advance Child Tax Credit Eligibility Assistant here.

There is a potential pitfall to be aware of. The advance payments may increase your tax liability. If you typically use the CTC to offset tax liability you may find yourself with a larger tax bill. If you usually get a tax refund, you could receive a smaller return. To avoid underpaying, you can adjust your withholdings and/or opt-out of receiving the advance payments.

Most W2 employees pay their federal income taxes through paycheck withholdings. To adjust the amount withheld, an updated Employee’s Withholding Certificate (form W-4) would need to be submitted to the employer. Click here for a form W-4. Those who pay self-employment tax would need to adjust their quarterly estimated payments. To determine what and if adjustments are needed, taxpayers can use the Tax Withholding Estimator here.

Taxpayers can also opt-out of receiving the advance payments in the Child Tax Credit Update Portal (CTC Portal), here. It is important to note:

  • both parents must opt out. If only one opts out, half of the advance payment will still be sent.
  • the opt-out cannot be reversed.
  • to stop advance payments, you must unenroll 3 days before the first Thursday of next month by 11:59 p.m. Eastern Time.
Payment MonthUnenrollment DeadlinePayment Date
July6/28/20217/15/2021
August8/2/20218/13/2021
September8/30/20219/15/2021
October10/4/202110/15/2021
November11/1/202111/15/2021
December11/29/202112/15/2021

To access the portal, a person must first verify their identity with a form of photo identification using the IRS’s trusted third party, ID.me. You can also opt-out over the phone at 800-908-4184.

For more information about the Advance Child Tax Credit Payments visit: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.


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