2021 Child Tax Credit

Who Qualifies for the Child Tax Credit?

Parents can get the full tax credit or if they make too much, they can get a portion of the tax credit. If your modified adjusted gross income (AGI) is below $150,000 as a married couple filing jointly or below $75,000 as an individual, you get the full tax credit.

The IRS uses the last tax return you filed to determine whether or not you qualify based on your AGI and the age of your children. In order for the child to count for the credit, they must be a U.S. citizen, you must claim them as a dependent, and they must live with you at least 6 months out of the year.

What Is a Tax Credit?

A tax credit is an amount of money that is subtracted from the amount in taxes you owe. If the amount of taxes you owe is less than the tax credit amount, then that credit is given to you. Usually, there is a “floor” for these types of credits, meaning you have to pay a certain amount in taxes in order to qualify, but that is not the case with this tax credit.

How Do I Receive the Tax Credit?

The American Rescue Plan Act of 2021 now allows child tax credits to be collected monthly, in advance of 2021 taxes. This means there are a couple of options:

1. You can get the full claim when you file your 2021 taxes (the ones filed in 2022) which would lower the amount of taxes you owe and lead to a larger return.
2. You can get half of your claim in monthly cash installments starting in July of 2021 running until December. You then get the other half as a tax credit on your 2021 taxes.

If you want to choose the first option where you get all the money later, then you have to opt out of the cash payments. The U.S. Treasury is currently creating an online portal to opt out.^[1]

This online portal is also where you can tell the IRS of any relevant changes such as if a child is born.

If Parents Are Separated, Who Gets the Tax Credit?

Similar to the stimulus checks that gave an extra amount to people with children, the tax credit is based on the last filed taxes, so the parent who claimed the child or children on their 2020 taxes gets the tax credit.

Many parents switch off for who claims the child each year, so this may balance out somewhat with the previous stimulus packages. Or, if parents have a good relationship, the person receiving the money could share it with the other parent. If there are disputes over who should get the money, a parent could file with the courts. If you do decide to take it to court or if you need advisement on your situation, it's best to speak with a family law attorney such as Sterling Lawyers.