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What to know about changes to the child tax credit

When Congress passed the American Rescue Plan on March 10, 2021, one of the initiatives included was an expansion of the child tax credit. If you have children age 17 and under, you’re probably familiar with the child tax credit that most parents and guardians can claim on their annual federal tax return. Starting on July 15, 2021, however, the per child benefit amount increases and benefits will be delivered in advance by direct monthly payments.

What’s changed?

  • The amount of the 2021 annual child tax credit increases from $2,000 per year to a maximum of $3,000 a year for children ages 6 to 17, and $3,600 for children under 6.
  • Part of the credit will be given as monthly payments beginning July 15. This is a change from previous years when families had to claim the credit on their annual federal tax return.
  • Payments of up to $300 per child under age 6 and up to $250 per child age 6 to 17 will be distributed on the 15th of each month, from July through December this year. So, for example, an eligible family with a 3-year-old, a 6-year-old and a 17-year-old will receive an extra $800 each month from July through December.
  • The other half of the tax credit (for January through June 2021) can be claimed in 2021 tax refunds when you file your taxes next year. The IRS will mail notices to families in January 2022 showing the amount of child tax credit payments made in 2021.
  • Taxpayers who don’t have earned income or owe any income taxes can still receive the payments. Advance child tax credit payments cannot be counted as income when determining if you or anyone else is eligible for government assistance, so it will not affect any benefits you currently receive.

Who is eligible for the child tax credit?

Families eligible for the full credit amount include those earning less than $150,000 per year for married taxpayers filing a joint return and qualifying widows/widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.

Those with higher incomes will see credit payments reduced by five cents for each dollar above those income thresholds.

The credit includes children born in 2021 and children who turn 17 in 2021.

What do I need to do?

Most people do not need to take any action to receive their monthly benefit, which will be based on dependent and income information provided in 2019 or 2020 federal tax returns. If you didn’t file a 2020 tax return because you earned too little, you should do so now to receive your advance child tax credit payments.

If you linked a bank account for your tax refund, the IRS will automatically direct deposit your monthly benefit into that account. The IRS estimates that 80% of eligible households will receive their benefit by direct deposit. If the IRS doesn’t have your bank information, or you closed the account on file, eligible households will receive their monthly payments by paper checks or debit cards.

How can I update my information?

The IRS is creating online portals to help eligible families with qualifying dependents ensure that their information is up to date. The Child Tax Credit Update Portal (CTC UP) will let users update their income, filing status, number and ages of children, and their banking information. This portal will also allow taxpayers to opt out of receiving the advance monthly payments and claim the full credit amount on their 2021 tax return instead. The IRS expects the CTC UP portal to be available in late June.

The Non-Filer Sign-up tool has been created specifically for people who did not file a tax return for 2019 or 2020 and who did not use the IRS Non-filers tool last year to register for Economic Impact Payments. This portal enables individuals to provide required information about themselves, their qualifying children age 17 and under, their other dependents, and their direct deposit bank information so the IRS can quickly and easily deposit the payments directly into their checking or savings account.

What if I do not want to receive advance child tax credit payments?

If you prefer not to receive monthly advance Child Tax Credit payments because you would rather claim the full credit when you file your 2021 tax return, or you know you will not be eligible for the Child Tax Credit for your 2021 tax year, you will be able to unenroll via an online portal before the first advance Child Tax Credit payment is made. You will not be able to unenroll until the portal is open.

For the latest news and information about the expanded child tax credit, visit the related IRS web page or this list of frequently asked questions. Commerce does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to your specific financial situation.

Everyone should to be on the lookout for scam artists trying to use advance Child Tax Credit payments as a cover for schemes to steal personal information and money. Be aware that the IRS doesn't initiate contact by email, text messages, or social media channels to request personal or financial information — even information related to advance Child Tax Credit payments. Also, watch out for emails with attachments or links claiming to have special information about advance Child Tax Credit payments or refunds of the Child Tax Credit.

If you receive a suspicious IRS-related email, go to their website for more information and report phishing and online scams.

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