IRS Extends Tax Deadlines for Michigan Storm Victims

Residents of certain Michigan counties can wait until November 1, 2021, to file federal tax returns and make tax payments that would normally be due before that date. The IRS extended the deadlines because of the severe storms, flooding and tornadoes that began on June 25, 2021, in parts of the state that were declared a disaster area by the Federal Emergency Management Agency (FEMA). The tax relief applies to residents of Washtenaw and Wayne Counties.

Various federal tax filing and payment due dates for individuals and businesses from June 25 to October 31 will be shifted to November 1, 2021. Although this will not include tax payments related to 2020 returns that were due on May 17, 2021, it will include:

  • Quarterly estimated income tax payments normally due on September 15;
  • Quarterly payroll and excise tax returns ordinarily due on August 2;
  • Valid extension filings normally due on October 15; and
  • Filing of Form 2290, Heavy Highway Vehicle Use Tax Return, normally due on August 31.

Penalties on payroll and excise tax deposits due from June 25 to July 12 will also be waived if the deposits were made by July 12, 2021.

You don’t have to contact the IRS to get this relief. However, if you receive a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, you should call the number on the notice to have the penalty abated.

The IRS will also waive fees for obtaining copies of previously filed tax returns for taxpayers affected by the storm. When requesting copies of a tax return or a tax return transcript, write “Michigan Severe Storms, Flooding, and Tornadoes” in bold letters at the top of Form 4506 (copy of return) or Form 4506-T (transcript) and send it to the IRS.

In addition, the IRS will work with any taxpayer who lives outside Michigan, but whose records necessary to meet a deadline occurring during the postponement period are located in the state. Taxpayers qualifying for relief who live in another state need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2021 return normally filed next year), or the return for the prior year. This means that taxpayers can, if they choose, claim these losses on their 2020 return. Be sure to write the FEMA declaration number (FEMA 4607-DR) on any return claiming a loss. It’s also a good idea for affected taxpayers claiming the disaster loss on a 2020 return to put the Disaster Designation (“Michigan Severe Storms, Flooding, and Tornadoes”) in bold letters at the top of the form. See IRS Publication 547 for details.


“Plus-Up” Stimulus Checks Have Already Been Sent to 9 Million Americans – Will You Get One Too?

If you already received a third stimulus check, you might find an additional check from the IRS in your mailbox in the coming weeks – especially if you filed your 2020 tax return close to the May 17 deadline. The IRS is calling these extra checks “plus-up” payments, and more than 9 million Americans have already receive the supplemental payment. Over 900,000 plus-up payments were sent in just the last six weeks, and more of them will be sent in the weeks and months ahead as the IRS continues to process 2020 tax returns. The big question is: Will you get one?

The IRS is sending plus-up payments to people who received a third-round stimulus check that was based on information taken from their 2019 federal tax return or some other source, but who are eligible for a larger payment based on a 2020 return that is filed and/or processed later. This could happen, for example, if you had a new baby last year that is reported as a dependent for the first time on your 2020 return (see below for other possible reasons).

So, if you recently filed your 2020 return, you might get a plus-up payment soon. If you requested a filing extension and haven’t filed your 2020 return yet, there’s an extra incentive to get it done quickly (i.e., not waiting until October 15 to file your return). Your 2020 return must be filed and processed by the IRS before August 16, 2021, if you want to get a plus-up payment. That means you still have time to act if you got an extension – but not too much time! Plus, the sooner you file your return, the sooner you’ll get your “plus-up” payment (plus any other tax refund the IRS owes you).

How Stimulus Payments Are Calculated

Most eligible Americans have already received their third stimulus check. The “base amount” is $1,400 ($2,800 for married couples filing a joint tax return). Plus, for each dependent in your family, the IRS adds on an extra $1,400. Unlike for previous stimulus payments, the age of the dependent is irrelevant.

However, third-round stimulus checks are then “phased out” (i.e., reduced) for people with an adjusted gross income (AGI) above a certain amount. If you filed your most recent tax return as a single filer, your payment is reduced if your AGI is over $75,000. It’s completely phased-out if your AGI is $80,000 or more. For head-of-household filers, the phase-out begins when AGI reaches $112,500 and payments are reduced to zero when AGI hits $120,000. Married couples filing a joint return will see their third stimulus check drop if their AGI exceeds $150,000 and completely disappear when AGI is $160,000 or more.

The IRS looks at your 2019 or 2020 tax return to determine your filing status, AGI, and information about your dependents. If you don’t file a 2019 or 2020 return, the IRS can sometimes get the information it needs from another source. For instance, it got information from the Social Security Administration, Railroad Retirement Board, or Veterans Administration for people currently receiving benefits from one of those federal agencies (although the IRS may not have gotten all the information it needs to send a full payment). If you supplied the IRS information last year through its online Non-Filers tool or by submitting a special simplified tax return, the tax agency can use that information, too.

If your 2020 tax return isn’t filed and processed by the time it starts processing your third stimulus check, the IRS will base your payment on your 2019 return or whatever other information is available. If your 2020 return is already filed and processed, then your stimulus check will be based on that return. If, however, your 2020 return is not filed and/or processed until after the IRS sends your third stimulus check, but before August 16, that’s when the IRS will send you a plus-up payment for the difference between what your payment should have been if based on your 2020 return and the payment actually sent that was based on your 2019 return or other data.

(Note: The IRS has had tax return processing delays this year. So, even if you submitted your 2020 return before your third stimulus check was sent, your stimulus payment still might be based on your 2019 return because your 2020 return wasn’t processed in time. Returns filed electronically are generally processed faster than paper returns.)

If for some reason you don’t get a plus-up payment, you’ll still get your money if a payment based on your 2020 tax return is higher than the payment you actually received – but you’ll have to wait until next year to get it. In that case, you can claim the difference as a Recovery Rebate credit on your 2021 tax return, which you won’t file until 2022.

[Use our Third Stimulus Check Calculator to compare your payment if it’s based on your 2019 return vs. your 2020 return. Just answer three easy questions to get a customized estimate.]

Who Will Get a Supplemental “Plus-Up” Payment

Again, you’ll only get a supplemental “plus-up” payment if you received a third stimulus check based on your 2019 tax return or other information, but you would have gotten a larger check if the IRS based it on your 2020 return. So, who falls into this category? Of course, it depends on your specific circumstance. However, to give you a general idea, here are a few examples of hypothetical taxpayers who should get a plus-up payment.

You Had Less Income in 2020 Than in 2019: Kay was unemployed for much of 2020. As a result, her AGI dropped from $78,000 in 2019 to $40,000 in 2020. Kay received a $560 third stimulus check that was based on her 2019 return (she is single with no dependents). Since her 2019 AGI was above the phase-out threshold for single filers ($75,000), her payment was reduced. Kay later files her 2020 tax return, which is processed before August 16, 2021. Since Kay’s 2020 AGI is well below the applicable phase-out threshold, her third stimulus check would have been for $1,400 if it were based on her 2020 return. As a result, Kay will receive a $840 plus-up payment ($1,400 – $560 = $840).

You Had a Baby in 2020: Josh and Samantha had their first child in 2020. They’ve been married for five years, and they file a joint return each year. Their AGI was $110,000 in 2019 and $120,000 in 2020, which are both below the phase-out threshold for joint filers ($150,000). The IRS sent Josh and Samantha a $2,800 third stimulus check based on their 2019 return. They filed their 2020 tax return before the IRS sent the payment, but the return was not processed until a week after the payment was sent. That’s why the payment was based on their 2019 return. Since Josh and Samantha claimed their new bundle of joy as a dependent on their 2020 return, their stimulus check would have been for $4,200 if it were based on their 2020 return (i.e., they would have received an additional $1,400 for their baby). As a result, the IRS will send Josh and Samantha a $1,400 plus-up payment ($4,200 – $2,800 = $1,400).

You Got Married in 2020: Patty and Greg were married in 2020. They had a combined AGI of $150,000 in 2020 and have no dependents. In 2019, as separate single filers, Patty had an AGI of $72,000 and Greg had an AGI of $78,000. The IRS sent Patty a $1,400 third stimulus check based on her 2019 return. Since her 2019 AGI was below the phase-out threshold for single filers ($75,000), her payment was not reduced. The IRS sent Greg a $560 third stimulus check based on his 2019 return. Since his 2019 AGI was above the phase-out threshold for single filers, his payment was reduced. Between the two of them, they got a total of $1,960 in third stimulus check payments ($1,400 + $560 = $1,960). After receiving their stimulus checks, Patty and Greg file a joint return for the 2020 tax year that is processed before August 16, 2021. Since the AGI reported on their 2020 joint return does not exceed the phase-out threshold for joint filers ($150,000), their stimulus check would have been for $2,800 if it were based on their 2020 return (i.e., it wouldn’t have been reduced). As a result, the IRS will send Patty and Greg a $840 plus-up payment ($2,800 – $1,960 = $840).

You Used the Non-Filers Tool Last Year: Mary is single and has two dependent children. One turned 15 and the other turned 18 in 2020. Mary was not required to file a 2019 tax return, but she did use the IRS’s Non-Filers tool last year to get a first-round stimulus check. Since children over 16 did not qualify for the extra $500 payment for first-round payments, Mary only reported her youngest child to through the tool. The IRS sent Mary a $2,800 third stimulus check based on the information it received through the Non-Filers tool. Mary later files a 2020 tax return, which is processed before August 16, 2021. She used the head-of-household filing status, reported an AGI of $15,000, and claimed both of her children as dependents. For third-round stimulus checks, an additional $1,400 is added to the total payment for each dependent regardless of the dependent’s age. Since Mary’s 2020 AGI is below the phase-out threshold for head-of-household filers ($112,500), her third stimulus check would have been for $4,200 if it were based on her 2020 return. As a result, Mary will receive a $1,400 plus-up payment ($4,200 – $2,800 = $1,400).

A Federal Agency Supplied Information to the IRS: Ron is a disabled veteran who receives benefits from the Department of Veterans Affairs (VA). He is single and has one dependent child. Ron was not required to file a 2019 tax return, but the VA sent information to the IRS about Ron. The VA did not send any information about Ron’s child. Based on the information it had, the IRS sent Ron a $1,400 third stimulus check. After receiving this payment, Ron files a 2020 tax return, which is processed before August 16, 2021. Ron filed as a single person with an AGI of $18,000 and one dependent. Since Ron’s 2020 AGI does not exceed the phase-out threshold for single filers ($75,000), his third stimulus check would have been for $2,800 if it were based on his 2020 return. As a result, the IRS will send Ron a $1,400 plus-up payment ($2,800 – $1,400 = $1,400).


IRS Is Sending More Unemployment Tax Refund Checks This Summer

If you received unemployment benefits last year and filed your 2020 tax return relatively early, you may find a check in your mailbox soon (or a deposit in your bank account). The IRS started issuing automatic tax refunds in May to Americans who filed their 2020 return and reported unemployment compensation before tax law changes were made by the American Rescue Plan. The tax agency has already sent millions of refunds, but additional tax refund checks will be sent through the summer.

The American Rescue Plan Act, which was enacted in March, exempts up to $10,200 of unemployment benefits received in 2020 ($20,400 for married couples filing jointly) from federal income tax for households reporting an adjusted gross income (AGI) less than $150,000 on their 2020 tax return. If you received more than $10,200 in unemployment compensation last year, any amount over $10,200 is still taxable.

The IRS has identified over 10 million people who filed their tax returns before the plan became law and is reviewing those returns to determine the correct amount of tax on their unemployment compensation. For those affected, this could result in a refund, a reduced tax bill, or no change at all. (You can use the IRS’s Interactive Tax Assistant tool to see if payments you received for being unemployed are taxable.)

The IRS is recalculating impacted tax returns in two phases. It started with tax returns from single taxpayers who had relatively simple returns, such as those filed by people who didn’t claim children as dependents or any refundable tax credits. Joint returns filed by married couples who are eligible for an exemption up to $20,400 and others with more complex returns were shifted to phase two.

Remember, though, that the tax exemption only applies to unemployment benefits received in 2020. So, if you receive unemployment compensation in 2021 or beyond, expect to pay federal tax on the amount you get.

Refunds for Unemployment Compensation

If you’re entitled to a refund, the IRS will directly deposit it into your bank account if you provided the necessary bank account information on your 2020 tax return. If valid bank account information is not available, the IRS will mail a paper check to your address of record. (If your account is no longer valid or is closed, the bank will return your refund to the IRS and a check will be mailed to the address the tax agency has on file for you.) The IRS says it will continue to send refunds until all identified tax returns have been reviewed and adjusted.

The IRS will send you a notice explaining any corrections. Expect the notice within 30 days of when the correction is made. Keep any notices you receive for your records, and make sure you review your return after receiving an IRS notice.

The refunds are also subject to normal offset rules. So, the amount you get could be reduced (potentially to zero) if you owe federal tax, state income tax, state unemployment compensation debt, child support, spousal support, or certain federal non-tax debt (i.e., student loans). The IRS will send a separate notice to you if your refund is offset to pay any unpaid debts.

Should I File an Amended Return?

Although the IRS says there’s no need to file an amended return, some early filers may still need to, especially if their recalculated AGI makes them eligible for additional federal credits and deductions not already included on their original tax return.

The IRS, for example, can adjust returns for those taxpayers who claimed the earned income tax credit and, because the exemption changed their income level, may now be eligible for an increase in the tax credit amount which may result in a larger refund. That said, taxpayers will need to file an amended return if they didn’t originally claim the tax credit, or other credits like the additional child tax credit, but now are eligible because the exclusion changed their income, according to the IRS. These taxpayers may want to review their state tax returns as well.

E-Filing Your 2021 Tax Return

Next year, when you try to e-file your 2021 tax return, you will have to sign and validate your electronic return by entering your prior-year AGI or your prior-year Self-Select PIN. If you use your AGI, make sure to use the AGI as originally reported on Line 11 of your 2020 Form 1040 or 1040-SR. Don’t use the corrected AGI if the IRS adjusts your 2020 return to account for the unemployment exclusion.

Withholding from Unemployment Compensation

Again, the $10,200 exemption only applies to unemployment compensation received in 2020. So, to avoid a big tax bill when you file your 2021 return next year, consider having taxes withheld from any unemployment payments you receive this year.

Contact your state unemployment office to have federal income taxes withheld from your unemployment benefits. You may be able to use Form W-4V to voluntarily have federal income taxes withheld from your payments. However, check with your state to see if it has its own form. If so, use the state form instead.

Victims of Unemployment Fraud

Whenever the government starts sending checks, criminals will try to get their hands on some of that money. That’s certainly the case with the unemployment compensation tax refunds. The good news is that you won’t be punished if a crook uses your name and personal information to steal a tax refund from Uncle Sam.

So, for example, if you received an incorrect Form 1099-G for unemployment benefits that you didn’t receive, the IRS won’t adjust your tax return to add the unemployment compensation to your taxable income. You should still report the fraud to the state workforce agency that issued the incorrect form, though.

What About State Taxes?

Just because the federal government is waiving taxes on the first $10,200 of your 2020 unemployment benefits, that doesn’t mean your state will too. To see if your state has adopted the federal exemption for 2020 state tax returns, see Taxes on Unemployment Benefits: A State-by-State Guide.


PODCAST: Get the Most from the Expanded Child Tax Credit

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David Muhlbaum: Some of us are about to get yet another stimulus from the government. The latest version is the expanded child tax credit, which starting this month means payments to qualifying families. Joy Taylor, editor of the Kiplinger Tax Letter, joins us to talk about how all this will work. Speaking of taxes, as wedding bells ring out again, what does that mean for filers? All coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m senior editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing, Sandy?

Sandy Block: I’m peachy.

David Muhlbaum: Just peachy. Yeah. That fruit is coming into season. Question for you though, have you been invited to any weddings?

Sandy Block: Not recently, but it looks like there might be some out there on the horizon.

David Muhlbaum: Oh, who?

Sandy Block: I can’t say, but people are definitely talking about it, getting engaged, talking about it. I’ve heard a lot of stories about people who were going to get married last year and postponed it until fall of 2021 or even later. So it sounds like there’s a lot of marriages sort of in the hopper.

David Muhlbaum: In the works. Yeah.

Sandy Block: In the works. That’s right.

David Muhlbaum: Right. Yeah. That’s why I brought that up, because I feel like we may be on the cusp of an explosion in weddings. Or, not! What I wanted to talk about was a piece Emma Patch wrote for Kiplinger’s Personal Finance that was a good solid recap of how marriage affects taxes. And it’s not like those rules are really going to affect whether someone schedules a wedding in 2021, but they’re good to know and review — you know, personal-finance guidance. But I thought, hey, let’s see what the data says, like, are we on the cusp of a wedding boom? Those anecdotes that you and I have, well, that’s great, but is there data on this? An economic indicator? Because as we know, there’s a ton of money sloshing around the wedding industry. So you would think that people who rent venues, sew dresses, bag bird seed, whatever, they’d want to know. Now, I found a survey from The Knot, the big wedding website that suggested a boomlet. But, it’s a survey of their own readers, so it’s kind of a self-selecting group.

Sandy Block: Right. You’re not going to The Knot if you’re not getting married or at least thinking about it. I guess people could look at marriage licenses. You can’t get married, well, legally, without one of those. I remember getting mine and I got some free household goods out of the deal.

David Muhlbaum: Lucky you.

Sandy Block: Oh yeah.

David Muhlbaum: Well, that’s true. That’s true. But marriage licenses, those are issued by a zillion counties and municipalities, and they don’t tell you what kind of party someone’s going to throw.

Sandy Block: Right. To bring another Emma story into it; we’ve got one in the works. Emma talked to a wedding planner in Portland, Oregon who gave the impression that it’s not necessarily full steam ahead, party down for the wedding industry. Because a lot of her clients still have concerns about guests who might be immunocompromised or have family members who aren’t vaccinated. Young people — what do you do about that? There are still local regulations in many places about large gatherings. So that’s just an anecdote, but it’s from someone right in the heart of the business.

David Muhlbaum: Yeah. I guess we’re not going to get a forward-looking indicator on weddings. So let’s recap the marriage stuff so that we at least squeeze in some actual useful facts before we get to our main segment.

Sandy Block: Right. That’s marriage and taxes.

David Muhlbaum: Right. That’s what we’re going to talk about now. Then we’re going to talk about children and taxes. So, okay. Marriage and taxes. Now, one of those is inevitable and the other isn’t, but when you get married, it can change your tax situation. Now, in the old days, and by old days, I mean before 2017, when you were talking about matrimony and taxes, the word marriage was usually followed by penalty, marriage penalty. It was just one of those things that people like you and me would talk about with the younger people getting engaged. “Well, it’s lovely that you and McKayla are tying the knot, but it’s a pity about that marriage penalty.”

Sandy Block: But nowadays, when someone tells me that their partner doesn’t want to get married because of the marriage penalty, I just tell them, “Your partner just doesn’t want to get married.” Because under the 2017 tax law, the marriage penalty pretty much went away except for the very wealthy. In fact, some couples may actually enjoy a marriage bonus, and what this is all about is the idea of filing jointly, putting the spouse’s incomes together. I sometimes hear from people who say, “Well, we’ll just file separately and save taxes.” No, you won’t. The IRS is onto that, and it doesn’t want you lowering your taxes by filing separately. But under the current regime, it’s very unlikely that filing jointly will result in a higher combined tax bill than you would have if you never got married and just lived together.

David Muhlbaum: There still could be reasons though to file separately, to pass up that new marriage bonus.

Sandy Block: Right. I guess the major one, and this is probably something you should seriously think about if you’re thinking about getting married, is that if your spouse commits fraud. Or to be less harsh, maybe your spouse has his own business, and maybe it’s not reported all of his or her income. You could be on the hook for that, if you’re married. if you’re single, you’re off the hook. So certainly file separately if you think that the IRS has the goods on your spouse.

David Muhlbaum: Yeah. You might want to have a little chat there.

Sandy Block: I think this is a good thing.

David Muhlbaum: Yeah. But the marriage penalty might be alive and well at the state level, right? I mean, we’ve got 50-plus regimes to deal with there.

Sandy Block: Yes. Absolutely, and that’s something that Emma covered in her story. There are 15 states that have a marriage penalty built into their tax bracket structure. Seven states and the District of Columbia, however, offset the marriage penalty in their bracket structure by allowing married taxpayers to file separately in the state, even if they filed jointly on their federal tax return.

David Muhlbaum: Yeah. Of course, there are a good number of states that don’t have an income tax at all, or a flat one. Hey, check out Kiplinger’s Tax Map for that, newlyweds. When we return, more on taxes — but different ones — with Joy Taylor, editor of the Kiplinger Tax Letter.

Child Tax Credit with Joy Taylor

David Muhlbaum: Welcome back to Your Money’s Worth. The American Rescue Plan, remember that, is still pumping money into the economy. The latest flow starts this month with advanced payments from the IRS, for the expanded child tax credit. Unlike earlier stimulus efforts that went extremely wide with the goal to put cash in the pockets of just about every taxpayer as quickly as possible, the expanded child tax credit is a more tailored affair. Like number one, you’ve got to have kids, but that’s not all there is to it, and a range of income limits apply. Joy Taylor, the editor of the Kiplinger Tax Letter will help us sort out this complex program to make sure you can take advantage of it in the best way for your finances. If you’re sitting there thinking, hey, I pay taxes. I don’t have kids, what’s up with that? We’ll touch on those issues a bit too. So welcome, Joy. Thanks for joining Your Money’s Worth. First time, right?

Joy Taylor: Yes, it is. Thanks for having me, David and Sandy.

David Muhlbaum: It isn’t our first go round with the expanded child tax credit though. Earlier this year, we had Rocky Mengle, Kiplinger’s senior tax editor here on Your Money’s Worth to talk about stimulus checks. Then Sandy, you asked him about the child tax credit.

Sandy Block: I just like to stay ahead of the news. Are you blaming me for that?

David Muhlbaum: A little. I have no doubt that Rocky did the best job imaginable in laying out how the child tax credit worked up until now, because child tax credits aren’t new, let’s make that clear. And then, how the American Rescue Plan was going to expand it. But at the end, I was still like, oh my God, this is complicated and who is going to remember all those numbers and phaseouts and income levels? That was even before we knew how the government itself was going to administer the program, which is its own new layer of complexity.

Sandy Block: Right. But the news here is that people are going to start getting checks, and that’s one of the things that Joy is going to give us details on.

David Muhlbaum: Yeah. Yeah, absolutely. Absolutely. That’s why we’re doing this again. But the problem of the numbers, and the phaseouts, and the income levels, it hasn’t gone away. So right off the bat, I want to plug a tool that we’ve come up with here at Kiplinger, that you can go online and use to see how the expanded child tax credit works for you. It’s the 2021 Child Tax Credit Calculator, and it does exactly what it says on the tin. Because, even if we do the most exhaustive explanation possible here today, you’re probably going to forget some portion of what we said, and in any case, you’ll want to run your own numbers. So “Child Tax Credit Calculator,” search those words or look in our show notes. The other thing we’re going to plug now, and maybe later, depending on how stuck we get, is Joy’s FAQ piece, “Child Tax Credit 2021. Who Gets $3,600? Will I get Monthly Payments?” I’ll also link to that in the show notes.

David Muhlbaum: Sorry, Joy. I’m trying to make this easier on everyone, you included. In fact, my first question is going to attempt to skip past all those numbers altogether, and just get you to talk about one of the main things that makes the expanded child tax credit so different. That is, if you qualify, you get some of the money upfront, as Sandy mentioned. Government pays you! So if someone wasn’t paying attention to us or lived under a rock or whatever, they could end up having money appear in their bank account, starting July 15th, just like that.

Joy Taylor: Yes. That’s true, David. The expanded child tax credit allows for advanced monthly payments of the credit. It’s sort of based on the stimulus payments from earlier, from last year, and then earlier this year. People who, eligible families who qualify, will receive, starting July 15th, a monthly payment, per child. A monthly credit per child, depending how many children they have, their income, et cetera, for six months this year. So it’ll be July 15th and pretty much the 15th of each month until December. They’ll be getting these payments of this child credit up front. That puts more money in peoples’ pockets to help them, to help them pay their rent, their mortgage, food, or whatever they want to do with the money. Remember, the payments are an upfront sort of advance of a child credit that will be taken on your tax return that you file next year.

Sandy Block: So Joy, David didn’t want to get too bogged down in the numbers, but let’s go for the big number. What’s the most money that parents can get from this program?

Joy Taylor: So it all depends on the number of children you have and the age of the child. So the most money is $3,600 per child under the age of six, $3,000 per child from age six through 17. So when you’re talking about, that is the total annual credit per child that you have. When you’re talking about advanced payments, you’re talking about at least $300 per month, per child under age six, $250 per month, per child age six to 17. Let’s say you have two children, one five, one 10, you’ll be getting, and your income, you qualify for the full credit. You could get payments per month of $550.

David Muhlbaum: Wow. Okay. Just to be clear, there’s no cap on the number of kids, right?

Joy Taylor: Yeah. So there’s no cap on the number of kids, there’s just a cap on the ages of the children, but not on the number of children.

David Muhlbaum: That’s between you and your household, if .. okay, okay., go for it. Since we’ve gone there, in terms of numbers, let’s talk about the income limits. So the child tax credit has always been income-limited, make too much, you don’t get it. But now there are two tiers of income limits in effect? Can you outline how that works a little bit please, Joy?

Joy Taylor: Sure. I think the easiest way to do this is to first discuss the rules that were in effect prior to 2021, prior to this year. So the income levels that were in effect for 2020 was $200,000 for single people and $400,000 for married people. So if your income levels exceeded that, that’s when the child credit started to phase out. For 2021, you still have those $200,000 and $400,000 income levels for the $2,000 child credit. But for the people who qualify for the higher child tax credit of $3,000 or $3,600, based on the age of the child, those income levels are different, they’re lower. So those income levels are $75,000 for single people, $150,000 for married people. So you have two different income levels: You have income levels to qualify for the higher child tax credit of $3,000 or $3,600, and you have the income levels to qualify for the $2,000 child tax credit.

David Muhlbaum: If we’re going to try to shorthand those, essentially you can make more money and get the old one. To get the bigger new one, the income limits are lower.

Joy Taylor: Yes. To get the bigger new one, the income limits are $75,000 for single people and $150,000 for married people. By the way, that’s adjusted gross income figures, not taxable income figures. One thing though that I should just clarify when we go back to the advanced payments is, people who only qualify for the $2,000 child tax credit — so people with higher incomes, I mean, wealthy people; I’m talking about, up to $400,000 if you’re married — you still will get advanced monthly payments.

David Muhlbaum: Whoa! I didn’t even realize that one.

Joy Taylor: You’ll still get a monthly payment of up to $167 a month. So the monthly payment does not apply only for-

Sandy Block: Oh interesting.

Joy Taylor: The people on the lower end of the income scale. The monthly payments, the advanced payments are for anyone who qualifies for the child tax credit.

Sandy Block: Alright. Lots of people get a check.

Joy Taylor: Yeah. I don’t think many people know that-

Sandy Block: No. I think that’s really interesting.

Joy Taylor: I don’t think that’s been widely publicized, because this has generally been publicized and been talked about by lawmakers as an anti-poverty.

Sandy Block: Right. Right.

Joy Taylor: It’s an anti-child-poverty measure. So you’re wondering, well, why would someone, why would a family who makes $400,000 get $167 a month per child as payments.

Sandy Block: Right. Which is kind of the same discussion that went on over the stimulus checks. But along those lines, we should note that this is, right, a one-year program. So in 2022, the tax credit won’t go away, but it would go back to the old values and phaseouts. Is that right?

Joy Taylor: That is right now. So yes, the program is only for 2021. So in 2022, the income levels and ..the higher income levels and the $2,000 child credit will come back. All the advanced payments and the higher child tax credit would go away. However, lawmakers want to make this permanent. As I said, this is a, I’d mentioned before, it’s an anti-child-poverty program. So lawmakers, especially Democratic lawmakers, want to make the program permanent. President Biden had proposed for it to go through 2025. He wants to make it permanent too. That’s just solely, 2025 is just because of a federal budget issue. But Democratic lawmakers want this to be a permanent, essentially permanent stimulus payments.

David Muhlbaum: Do we have any sense of what the cost of this program is? Essentially by the government passing up revenue by doing this program, the expanded child tax credit?

Joy Taylor: Yeah. The cost of the expanded child tax credit is estimated to be about $107 billion for essentially the 2021-2022 year.

David Muhlbaum: Bingo. Okay. That’s pretty precise. So in essence, Joy, on one hand, we could look at this from a policy perspective as: The child tax credit is a subsidy for having kids. Now, it’s a more generous subsidy for having kids. There will probably be people who are opposed to government spending on the face of it, they may be opposed to government spending for anything. But I’m just curious, kids are popular, but, is there a constituency that pushes back against this?

Joy Taylor: Well, I don’t know, when you say pushes back against this. Some might say fiscal hawks and more conservatives might push back against these government programs or a higher child tax credit. However, when you look at history, in 2017, then-President Trump and Republicans passed a tax reform law. That tax reform law actually doubled the child tax credit from $1,000 to $2,000. So, subsidizing children, it’s not a partisan idea.

David Muhlbaum: No. That makes sense. That makes sense. But yes, there could still be… I just sort of imagined in my mind, there are people going, “but wait a minute, I pay taxes, too.” But I see your point. Children are bipartisanly popular. Again, Sandy, we’ve talked in the past about, well, how do other countries do it? Definitely, if you look at the tax regimes of countries like the UK and many others, there are specific carve-outs like this, where there is favorable tax treatment for having children. Sandy, you had a question about how this is actually going to work.

Sandy Block: Yeah. Just last week, the IRS Taxpayer Advocate put out a report, a really devastating report about IRS service. How many tax returns have not been processed. How only about five people in the United States actually got through calling? I’m exaggerating, but hardly anybody who called the IRS talked to a person. So I guess this is a program, once again, that we’re looking to the IRS to manage. Are they going to be able to pull this off? They already had to do stimulus checks, unemployment benefits adjustments. I mean, we’re really asking a lot of an agency that by every indication is underfunded and understaffed. Is that going to be problem, do you think?

Joy Taylor: So there are definite concerns. I mean, IRS has been underfunded for years. They keep losing personnel. They keep having to deal with changes in the tax laws. So, I can understand those concerns, and there very well could be issues in the future. However, I actually was pleasantly surprised by how well IRS handled stimulus payments. That was put on IRS very quickly. IRS did not know that was coming, and that was put on them quickly. Yes. That was a one-time payment, which actually ended up being three times. But the IRS overall, with hiccups here and there, overall did a good job with the stimulus payments. I think because of that, Congress thought that IRS could handle the job of deal of handling, paying out child payments.

Now, it is going to be difficult. IRS had to create all sorts of systems, all sorts of new tools on their website … they’re going out and doing press. They’re trying to advertise this credit to everyone. I mean, not just to people with money and people who might listen to this podcast. But also to people in public housing who would qualify for the credit. So IRS has a lot on its shoulders, but I don’t know. At the beginning of this, I had thought that IRS would not be able to handle it, now I’m becoming a bit more optimistic. So far they’ve been meeting the timeframes.

David Muhlbaum: Well, that’s good news. The individual though, has some control here too. You mentioned the systems that the IRS has been setting up to make the system, to make the payouts work. The individual who’s eligible can also check in to make things go smoothly. Can you talk a little bit about what those are and how people should do that?

Joy Taylor: Sure. So there are a few things. First off, I guess the first main issue, the first main question is, do you want these child payments? Do you want these monthly payments? Or would you rather take the full credit when you file your tax return next year? As I said upfront, the monthly payments are advances of the child tax credit that you will take on your 2021 return that you’re going to file.

David Muhlbaum: As you also mentioned, they may be going to people who, well, it doesn’t make that big a difference for them.

Joy Taylor: Right. Right. So some people might want to, instead of receiving monthly payments, maybe they would like a large refund when they file their return next year. So IRS has, well, IRS pursuant to the law because the law requires that IRS allow people to opt out of monthly payments. So these people will still qualify for the child tax credit, but they don’t have to receive monthly payments if they do not want to.

Joy Taylor: If you want to opt out, IRS has created a tool, it’s called the Child Tax Credit Update Portal. So you go onto that tool online to essentially opt out. You generally have to… If you don’t want the payments, you generally have to opt out at least two weeks prior to the next scheduled payment. So it’s too late to opt out for the July 15th payment. If you want to opt out for August and the next five payments, then you have to do that I think by early August.

Sandy Block: Joy, can you also use this portal to update information? Maybe you’ve got a child the IRS doesn’t know about?

Joy Taylor: Yes. Although that feature is not yet available, it will be on that portal. You can update the portal to provide if there’s a change in your income level, if there’s a change in the number of children, the age of your children. Because IRS is generally, if you think about this, IRS is generally going to look at your 2020 returns and 2020 information to figure out the amount, if you qualify for advance payments, and the amount. So if your circumstances are changing in 2021, or you know they’re going to, then you are going to want to go on to the Tax Credit Update Portal on IRS’s website and make those changes.

Sandy Block: I’m thinking, yeah-

David Muhlbaum: If you have a newborn for 2021 right?

Sandy Block: That’s what I’m thinking. If you had triplets this year, you’re going to want to go to that portal.

Joy Taylor: Well, you want… Yes, that’s true, but remember, you’ll want to go to that portal if you want the payments in advance for those triplets.

Sandy Block: I think if I had triplets I’d want that money.

Joy Taylor: Yeah. So you’ll still qualify for the credits, right? Do you want that money now? Do you want the money each month? Or would you rather receive, if you’re eligible, I don’t know, my math is awful. But whatever $3,600 times three is, like $10,000, is it $10,800? All at once.

David Muhlbaum: Well, diapers.

Sandy Block: That’s what I was going to say, David. That’s a lot of diapers. I think I’d want the money now. The other issue, because this came up with the stimulus checks is: Will people be able to use that portal to update their bank accounts? So I assume most folks are going to get this direct deposit.

Joy Taylor: Yes, and that feature is already up.

Sandy Block: Oh, great. Okay.

Joy Taylor: So yeah. So yeah, IRS is generally going to send, if they have your bank account information, they’ll directly deposit the monthly payments. Otherwise, they’ll send a check. If you don’t think IRS has your information, you can go in and update it.

David Muhlbaum: Got it. Now, we talked about the idea of not receiving the monthly payments because well, you’d rather have the money later or you don’t need it right away, that sort of thing. There are good reasons to do that. But it makes me think a little bit of the flip situation, which is when someone not only really needs the money, but that child tax credit could end up being an income to them. What I’m driving at here is the fact that, my understanding is that not only was the prior child tax credit, what’s called fully refundable, but the new one is as well. Which means that even if your federal income tax liability is zero, you still get money. Did I get that right?

Joy Taylor: Okay. Well, partly.

David Muhlbaum: Or sort of?

Joy Taylor: Sort of. Sort of. The prior child tax credit was not fully refundable.

David Muhlbaum: Oh, okay.

Joy Taylor: It was only refundable up to $1,400 per child, and only for very low-income people. You had to have at least $2,500 of earned income, meaning you had to have been working, et cetera. All of those limitations are now gone. So now for 2021, the child tax credit is fully refundable, meaning, even if you have no tax liability, you can get the money. You don’t, by the way, families do not have to have earned income. So for non-working families, maybe families looking for a job, families on various government subsidies, et cetera. If they don’t have any income at all, they’re still eligible for the child tax credit payments.

Sandy Block: I guess that’s why this is being promoted by supporters as an anti-poverty program, because people who really need the money are going to get it.

Joy Taylor: Well, exactly, I mean, just think if you have a very low-income family with say, three young children under the age of six. I’m just giving an example. I mean, this family will get $900 a month from July through December, and then the remaining credit. The remaining credit they could take on their tax return, and get refunded for the other half of the portion. Because remember these advanced payments are only for half of the higher child tax credit.

David Muhlbaum: Yes. That’s a very good point to make, because we do have, as I said at the start, a lot of dollar values floating around. Yeah. You get the money upfront and you get the money at the back. Seems pretty good if you’re going to take it. One other fine slice on the question of it being not only fully refundable, but essentially money for people who really need it. There’s some question here, whether you could get over-credited in your advanced payments, and then not be on the hook for adjusting. Can you see what I’m stumbling about, trying to get at here?

Joy Taylor: Yeah. So, yeah. So there are instances where IRS is going to probably pay, I don’t know maybe as much this year, because they’re only paying half of the credit. But maybe they’re paying it to people who don’t qualify for the credit at all, or to qualify maybe for much less. There are going to be instances where IRS is going to be paying too much of the child tax credit.. Essentially the payments that you receive are going to be an excess of the child credit that you’re actually entitled to when you file your return next year.

David Muhlbaum: But it would get balanced out then, but you’re never going to have to give money back. You just don’t get as much on the second half.

Joy Taylor: Well, you might have to give money back. I mean, it all just depends, when you do the whole balancing out, let’s say, there might be instances maybe where the advanced payments exceed the total child tax credit that you are entitled to. Some people will have to pay, depending on your income, will have to pay the excess back. This is unlike the stimulus check or essentially the stimulus check, if you got it and then your income is way too high-

Sandy Block: It was all yours. Yeah.

Joy Taylor: It was all yours. So with the child tax credit, it doesn’t quite work that way, but there is a safe harbor though. The safe harbor essentially is, if you’re single with income of less than $40,000 or married with income of less than $60,000, you don’t have to pay anything back, even if you’re not entitled to what you received.

David Muhlbaum: Bingo. Okay.

Joy Taylor: If your income is for single people above $80,000, $120,000 for married people, you’ll have to pay anything you received in proper, you’ll have to pay it back. Anything excess you’ll have to pay back. For people in the middle, they’ll have to pay a portion of it back.

David Muhlbaum: Got it. So yet again, there’s another income threshold and I’m going to go, it’s such a good thing that you put together that FAQ, because when we get boxed into a corner, we can go look at that.

Joy Taylor: Yeah. Sorry about those numbers.

David Muhlbaum: No problem.

Joy Taylor: But sometimes they are important.

David Muhlbaum: Well, thank you so much, Joy, for joining us today, and walking us through our partial knowledge and improving it. I hope you’ve improved other people’s knowledge as well. As I said before, check out those links. They’re really good. Thank you so much, Joy.

Joy Taylor: Thank you.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and review. If you’ve already subscribed, thanks, please go back and add a rating or review if you haven’t already. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed. Go to The episodes, transcripts, and links are all in there by date. If you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at Thanks for listening.


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9 Reasons to File a Tax Return Even If You Don’t Have To

Filling out tax forms is a pain in the you-know-what. So why on earth would anyone file a tax return if they don’t have to? Well, actually, there’s one very important reason why – you might get a big, fat check from the government.

People with income under a certain amount (see table below) aren’t required to file a tax return because they won’t owe any tax. But if you qualify for certain tax credits or already paid some federal income tax, Uncle Sam might owe you a refund that you can only get by filing a return. Think about that for a minute!

If you want to know more, here are 9 reasons why you might want to file a tax return even if you don’t have to. Even though dealing with taxes can be a real drag, it’s probably worth it if you wind up with a much fatter wallet in the end. (Note that the IRS won’t penalize you for filing a late return if you’re getting a refund.)

Federal Tax Return Filing Requirements (2020 Tax Year):

Filing Status and Age at End of 2020

Income Required to File 2020 Return

Single; Under 65


Single; 65 or Older


Married Filing Jointly; Both Spouses Under 65


Married Filing Jointly; One Spouse 65 or Older


Married Filing Jointly; Both Spouses 65 or Older


Married Filing Separately; Any Age


Head of Household; Under 65


Head of Household; 65 or Older


Qualifying Widow(er); Under 65


Qualifying Widow(er); 65 or Older


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Withheld Taxes

picture of IRS Form W-4picture of IRS Form W-4

If an employer withheld federal income taxes from your paycheck last year, or taxes were withheld from other sources of income in 2020, you might be entitled to a refund if you file a 202 tax return.

If you don’t owe any tax – and, therefore, aren’t required to file a return – then it only makes sense that any taxes you already paid should be refunded to you. But you won’t get that money back if you don’t file a 1040 form.

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Taxes Paid

picture of lettered blocks spelling out "Estimated Tax"picture of lettered blocks spelling out "Estimated Tax"

Withholding isn’t the only way you could have already paid taxes for 2020 to Uncle Sam. For instance, if you received income as an independent contractor or were otherwise self-employed, you may have made estimated tax payments last year. If you filed a 2019 tax return, you may have applied your refund from that return to your 2020 taxes (it’s optional).

If you paid 2020 taxes in advance in one of these two ways, make sure you file a tax return even if your overall income is below the applicable filing threshold amount. That will allow you to get that money back.

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Earned Income Tax Credit

picture of a woman delivering pizzapicture of a woman delivering pizza

The Earned Income Tax Credit (EITC) is for lower income working people. If you qualify for the credit, then you definitely want to file a tax return. The credit is “refundable,” meaning that if it’s worth more than the income tax you owe, the IRS will issue you a refund check for the difference. (With a “nonrefundable” credit, you don’t get a refund because the tax you owe isn’t reduced below zero.) The EITC is the first of several refundable credits that we’ll discuss.

For 2020 tax returns, the maximum EITC ranges from $538 to $6,660 depending on your income and how many children you have. (For your 2021 return, the range will be $1,502 to $6,728.) So, it’s well worth the time it takes to complete a tax form if you qualify for the credit.

The income limits to qualify for the EITC are fairly low. For example, if you don’t have kids, you can qualify if your 2020 earned income and adjusted gross income (AGI) are each less than $15,820 for singles and $21,710 for joint filers. (For 2021, those income limits rise to $15,980 and $21,920, respectively.) If you have three or more children and are married, though, your 2020 earned income and AGI can be as high as $56,844 ($57,414 in 2021). Plus, you can use your earned income from 2019 to determine the EITC for the 2020 tax year if it results in a higher credit amount. There are many exceptions and other rules, but the IRS has a handy online tool to help you figure out if you’re eligible for the credit.

For temporary changes to the 2021 EITC, see 6 Biden Stimulus Benefits That Pack the Biggest Punch.

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Child Tax Credit

picture of mother watch one child playfully smashing a cupcake into another child's facepicture of mother watch one child playfully smashing a cupcake into another child's face

For the 2020 tax year, parents with children 16 years old or younger may qualify for the child tax credit. The maximum credit amount is $2,000 per child, but up to $1,400 of the credit can be refundable. And that’s per child! So, like the EITC, you could end up with a nice refund check by filing a return just to claim this credit.

Not sure if you qualify for the credit? The IRS has an online tool to help with that.

Also note that, if you don’t qualify for the child tax credit, you might be able to claim a different tax credit for your dependents. There’s something called the “credit for other dependents,” and it’s worth up to $500 for each qualifying dependent. It’s a nonrefundable credit, though. So, it won’t trigger a refund if you otherwise don’t owe any tax.

There are a lot of temporary enhancements to the child tax credit for the 2021 tax year. The amounts are higher, more children qualify, it’s fully refundable, and the IRS will make advance monthly payments later this year (which you can estimate using our 2021 Child Tax Credit Calculator). For all the details, see Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

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Recovery Rebate Credit

picture of man holding sign saying "Stimulus Checks"picture of man holding sign saying "Stimulus Checks"

If you didn’t get a first- or second-round stimulus check, or you didn’t get the full amount, you may be able to get paid now by claiming the recovery rebate credit on your 2020 tax return. Those two stimulus checks were actually just advance payments of the credit. So, if you didn’t get the money earlier, you should get it now (assuming you’re eligible).

You’re generally eligible to claim the recovery rebate credit on your 2020 return if, in 2020, you:

  • Were a U.S. citizen or U.S. resident alien;
  • Can’t be claimed as a dependent on another person’s tax return; and
  • Have a Social Security number valid for employment that’s issued before the due date of your 2020 tax return (including extensions).

Calculation of the recovery rebate credit is generally the same as the calculation for the first two rounds of stimulus checks, except that they’re based on information from different sources. The first-round stimulus checks were typically based on information from either your 2018 or 2019 tax return, whichever was most recently filed when the IRS began processing your return. If you didn’t file a return for either of those two years, you could send the IRS the necessary information through an online portal. If you received benefits from the Social Security Administration (SSA), Railroad Retirement Board, or Department of Veterans Affairs (VA), the IRS got the information it needed from those other government agencies. Second-round stimulus checks were based on either your 2019 return, information previously obtained through the IRS’s non-filers online portal, or information received from another government agency. However, the amount of your recovery rebate credit is based entirely on information found on your 2020 tax return. For more information, see What’s the Recovery Rebate Credit?

There will also be a recovery rebate credit for 2021 tax year returns. That will be for people who didn’t receive a third-round stimulus check (or didn’t receive the full amount). To calculate the amount of your third stimulus check, use Kiplinger’s Third Stimulus Check Calculator. For more information on third-round stimulus checks, see Your Third Stimulus Check: How Much? When? And Other FAQs.

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American Opportunity Tax Credit

picture of four college students hanging out on some stepspicture of four college students hanging out on some steps

The American Opportunity credit covers expenses for students who are in their first four years of college. The credit is worth up to $2,500, and it can be claimed by a parent, spouse or student who is not claimed as a dependent who for tuition, fees, or textbooks.

The credit is partially refundable. So, if the credit is worth more than your tax liability for the year, you’ll get a refund check for 40% of the remaining amount – up $1,000 for each qualifying student. That should be enough to get you to complete a tax return if you don’t otherwise have to file one.

As with the EITC and child tax credit, the IRS has an online tool to help you figure out if you’re eligible for the American Opportunity credit. It will also help you determine if you can claim the Lifetime Learning credit or the tuition and fees deduction (2020 was the last year you can claim the tuition and fees deduction).

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Premium Tax Credit

picture of a magnifying glass over a book about ObamaCarepicture of a magnifying glass over a book about ObamaCare

The premium tax credit helps people pay for insurance they buy through the health insurance marketplace (i.e., Obamacare). The credit is available for people with household incomes ranging from 100% to 400% of the federal poverty level. The amount of the premium tax credit is based on a sliding scale, so that people with a lower income get a larger credit.

An estimated credit is calculated when you go on a marketplace website such as to buy insurance. At that point, you can choose to have the credit paid in advance directly to the insurance company to lower your monthly payments, or you can choose to get all the benefit of the credit when you file your tax return for the year. If you elect to have advance premium tax credit (APTC) payments made to the insurer, you will have to reconcile the amount paid in advance with the actual credit you compute when you file your tax return. Either way, you will need to complete Form 8962 and attach it to your tax return.

The premium tax credit is another refundable credit. So, if the amount of the credit is more than the amount of the tax you owe, you’ll receive the difference as a refund if you file a tax return. If you owe no tax, you can get the full amount of the credit as a refund. However, if your actual allowable credit is less than your APTC payments, the difference is usually subtracted from your refund or added to the tax you owe – except that the repayment of excess advance premium tax credit (APTC) amounts was suspended for 2020. Therefore, if you already filed your 2020 tax return and had excess APTC payments, the IRS will automatically reduce the excess APTC repayment amount to zero and send you a refund if one is required.

Be warned, though, that the IRS typically looks for people who receive advance credits and either don’t file returns or file returns incorrectly reporting the credit. So, monkeying around with the premium tax credit is a good way to get your return audited.

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Health Coverage Tax Credit

picture of a stethoscope on money picture of a stethoscope on money

The health coverage tax credit helps certain displaced workers and pre-retirees pay for health insurance. Specifically, it is available to (1) people eligible for Trade Adjustment Assistance allowances because of a qualifying job loss, and (2) people between 55 and 64 years old whose pension plans were taken over by the Pension Benefit Guaranty Corporation. The credit is worth up to 72.5% of payments for qualified health insurance coverage.

As with the other credits we’ve mentioned, the health coverage credit is refundable. So, if you can claim the credit, you’ll want to file a tax return just to claim the credit, even if you’re not required to file a return. By doing so, you can get a federal income tax refund check sent to you.

As with the premiums tax credit, the health coverage credit can be paid in advance. That also means that your refund will be smaller (or eliminated) if the advance credit payments are greater than your actual allowable credit. There’s no suspension of 2020 excess payments of the health coverage credit like there is for the premium tax credit.

Also note that the health coverage credit was set to expire at the end of 2020, but it was extended to December 31, 2021.

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Credits for Sick and Family Leave

picture of sick woman in bed taking her temperaturepicture of sick woman in bed taking her temperature

Many employers were required to provide paid sick and family leave in 2020 for workers affected by COVID-19. However, to shift most of the financial burden for paid leave off the employer’s back, tax credits were also made available to reimburse employers for some of the cost. Self-employed people who couldn’t work because of the coronavirus got similar refundable tax credits, too.

The credits are generally equivalent to the amount of qualified sick or family leave wages the self-employed person would have received if he or she were an employee of an employer. To be eligible for the 2020 self-employment credits, you must have regularly carried on a trade or business during 2020 and been eligible to receive sick or family leave wages if you had been an employee of an employer (other than yourself). Complete Form 7202 to calculate the credit amount.

People who paid household employment taxes might also be able to claim a refundable credit for a portion of any sick or family leave wages you paid that were related to the coronavirus. The amount of this credit is shown on Schedule H, Line 8e.

As with the other refundable credits discussed, the credits for sick and family leave can lower your tax bill or even result in a tax refund. So, make sure you claim them even if you aren’t required to file a 2020 tax return.


Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs

The child tax credit is bigger and better than ever for 2021. The credit amount is significantly increased for one year, and the IRS is making monthly advance payments to qualifying families from July through December.

But the changes are complicated and won’t help everyone. For instance, there are now two ways in which the credit can be reduced for upper-income families. That means some parents won’t qualify for a larger credit and, as before, some won’t receive any credit at all. More children will qualify for the credit in 2021.And, next year, when you file your 2021 tax return, you will have to reconcile the advance payments you received with the actual child tax credit you are entitled to.

It’s all enough to make your head spin. But don’t worry – we have answers to a lot of the questions parents are asking right now about the 2021 child credit. We also have a handy 2021 Child Tax Credit Calculator that lets you estimate the amount of your credit and the expected advance payments. Once you read through the FAQs below and try out the calculator, you should feel more at ease about the 2021 credit.

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2020 Child Tax Credit

picture of calculator with "Tax 2020" showing on the screenpicture of calculator with "Tax 2020" showing on the screen

Question: What were the rules for the 2020 child tax credit?

Answer: For 2020 tax returns, the child tax credit is worth $2,000 per kid under the age of 17 claimed  as a dependent on your return. The child must be related to you and generally live with you for at least six months during the year. He or she must also be a citizen, national or resident alien of the United States and have a Social Security number. You must put the child’s name, date of birth and SSN on the return, too.

The credit begins to phase out if your modified adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Once you reach the $400,000 or $200,000 modified AGI threshold, the credit amount is reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Modified AGI is the AGI shown on Line 11 of your 2020 Form 1040 (or Line 8b of your 2019 Form 1040), plus the foreign earned income exclusion, foreign housing exclusion, and amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

Up to $1,400 of the child credit is refundable for some lower-income individuals with children. However, you must also have at least $2,500 of earned income to get a refund.

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Changes Made for 2021

picture of two signs saying "Goodbye 2020" and "Welcome 2021"picture of two signs saying "Goodbye 2020" and "Welcome 2021"

Question: What changes did Congress make to the child tax credit?

Answer: The American Rescue Plan Act of 2021 temporarily expands the child tax credit for 2021. First, it allows 17-year-old children to qualify for the credit. Second, it increases the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it makes the credit fully refundable and removes the $2,500 earnings floor. Fourth, it requires half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021.

Note that the other general rules for child-tax-credit eligibility continue to apply. For instance, the child still must be a U.S. citizen, national or resident alien and have a Social Security number. You also must claim him or her as a dependent on your 2021 tax return, and the child must be related to you and generally live with you for at least six months during the year. And you still have to put the child’s name, date of birth and SSN on the return.

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Qualifying for the Higher Credit Amount

picture of a grumpy family sitting on their couch at homepicture of a grumpy family sitting on their couch at home

Question: Do all families qualify for the higher per-child tax credit of $3,000 or $3,600?

Answer: No, not all families with children will get the higher child tax credit, but most will. The enhanced tax break begins to phase out at modified AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit.

For example, if a married couple has one child who is four years old, files a joint return, and has a modified AGI of $160,000 for 2021, they won’t get the full $3,600 enhanced credit. Instead, since their modified AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100.

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Additional Phase-Out

picture of rich family getting on a private jetpicture of rich family getting on a private jet

Question: If my 2021 income is higher than the thresholds for taking the $3,000 or $3,600 per-child tax credit, do I still qualify for the $2,000-per-child credit?

Answer: It depends. Families who aren’t eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, could claim the regular credit of $2,000 per child, less the amount of any advance payments they get. Families with modified AGIs above the $400,000/$200,000 thresholds will see the $2,000 per-child credit reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over those thresholds.

For example, if a married couple has one child who is seven years old, files a joint return, and has a modified AGI of $415,000 for 2021, they won’t get the full $3,000 enhanced credit. First, because of their high income, they don’t qualify for the extra $1,000 (see question above), so their credit is reduced to the regular amount of $2,000. Then, since their modified AGI is $15,000 above the second phase-out threshold for joint filers ($400,000), their credit is reduced again by $750 ($50 x 15) – resulting in a final 2021 credit of $1,250.

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17-Year-Old Children

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Question: Can I take the higher child tax credit for my daughter who turns 17 in 2021?

Answer: Yes. If you meet all the other rules for taking the child tax credit, you can claim the credit for your daughter when you file your 2021 Form 1040 next year. The age for children qualifying for the credit for 2021 is 17 and under (a change from 2020’s requirement of 16 and under). So, 17-year-olds qualify as eligible children for the child credit for 2021.

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Fully Refundable

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Question: What does it mean that the child tax credit is fully refundable for 2021?

Answer: The expanded child credit is fully refundable for families  who live in the United States for more than one half of 2021. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit exceeded the taxes they otherwise owed. Under the new rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability.

Parents don’t need to be employed or otherwise have earnings in order to claim the child credit for 2021. Prior rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules.

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Information from Tax Returns

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Question: Who gets the advance payments?

Answer: The American Rescue Plan requires the IRS to pay half of the tax credit in advance. The IRS is sending out monthly payments (mainly in the form of direct deposits) from mid-July through December to eligible families. The IRS is basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks to your 2020 return, and if a 2020 return has not yet been filed, the IRS looks to your 2019 return. The IRS also has procedures for families who are not otherwise required to file tax returns.

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Timing and Frequency of Advance Payments

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Question: When will the IRS start making payments, and how many payments will I get?

Answer: The IRS will make six monthly child tax credit payments to eligible families from July to December 2021. The first round of payments will arrive on July 15. After that, payments will be issued on August 13, September 15, October 15, November 15 and December 15.

Most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. Most eligible families do not have to do anything to get these payments. The IRS has a tool on its website for families who want to update their bank information with the IRS.

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Amount of Monthly Payments

picture of a father and son sitting on a couch holding a lot of moneypicture of a father and son sitting on a couch holding a lot of money

Question: How much will a family get each month?

Answer: The advance payments account for half of a family’s 2021 child tax credit. The amount a family receives each month varies based on the number of children in the family, the ages of the kids and the amount of the family’s adjusted gross income. For example, families who qualify for the full $3,000 ($3,600 for children under age 6) credit per child get monthly payments of $250 per child ($300 per child under age 6) for six months. Families with higher incomes who qualify for the $2,000 credit get monthly payments of $167 per child for six months. (Yes, advance payments will go to all families who are eligible for the child tax credit, and not just to those who qualify for the $3,000 or $3,600 per-child higher credit).

Take a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn’t opt out of the advance payments, they will get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 federal tax return next year.

If that same family with three children qualifies for the $2,000 per-child credit and doesn’t opt out of the advance payments, they will get $500 per month from the IRS from July through December, for a total of $3,000. They will then claim the additional $3,000 in child tax credits when they file their 2021 Form 1040 next year.

Use our 2021 Child Tax Credit Calculator to see how much you’ll get!

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Changes to Your Family or Income

picture of man holding sign saying "Lost My Job"picture of man holding sign saying "Lost My Job"

Question: What if my family circumstances change during the year and I have more income or less income than shown on the 2019 or 2020 return that I filed with the IRS?

Answer: As mentioned above, the IRS is generally basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks at your 2020 return. If you haven’t filed a 2020 return, the IRS looks at your 2019 return. The IRS assumes that the number of children and the income that you reported on your 2020 (or 2019) return are the same for 2021. It accounts for the passage of time only for determining the age of the children.

The IRS has developed a Child Tax Credit Update Portal. Right now, the tool’s features are limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update your income, marital status and the number of qualifying children. You will also be able to update your mailing address and view your payments. So, if your circumstances changed in 2021, and you believe those changes could affect the amount of your child credit for 2021, go onto that portal once it is fully functional and update it for the correct information.

The IRS is also sending two rounds of letters to families that it believes may be eligible for monthly child credit payments based on 2019 or 2020 tax return data. The first round is generally for informational purposes. The second round of letters will list the family’s estimated monthly payment amount. You can also check your eligibility status for advance payments on the IRS’s Child Tax Credit Update Portal.

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Verifying Eligibility for Advance Payments

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Question: I think I qualify for monthly payments of the child tax credit, but I want to be sure that I am automatically enrolled in the IRS’s system. Is there a way to check this?

Answer: Yes, you can do this online using the IRS’s Child Tax Credit Update Portal. Once you have gone through all the steps to create an account and log on, you will be able to verify your eligibility for monthly payments and check on the status of those payments.

If the tool says a payment was issued, but you haven’t received it, then you can fill out IRS Form 3911 and send it to the IRS to start a payment trace. You’ll have to wait at least five days from the anticipated direct deposit date and at least four weeks for mailed checks before the IRS can begin a trace on any missing payment.

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Updating Bank Account Information

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Question: I want to make sure that the IRS has my correct bank account information so that my monthly payments can be directly deposited into my account. How do I do that?

Answer: As a general rule, most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. You can go on the IRS’s Child Tax Credit Update Portal to check whether you are going to get direct deposit payments and the bank account into which such payments will be made. Those who are not enrolled for direct deposit will get paper checks or debit cards unless they update their bank account information.

The tool also allows people to add a bank account for direct deposits (if there is not an account otherwise listed) or change the currently existing one listed on the portal. You will have to enter the bank routing number, account number, and indicate whether the account is a checking account or savings account.

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New Babies in 2021

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Question: What if I had a baby this year? Will I get advance payments?

Answer: Because the IRS does not know about the baby, you won’t receive payments for the first couple of months. But eventually, you will be able to use the IRS’s Child Tax Credit Update Portal to give the IRS this information. As discussed above, the tool’s features are currently limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update the number of qualifying children to account for your new baby so the IRS will know to begin sending you payments. If you decide not to do this, you’re not out of luck. You won’t get the payments, but you’ll be able to account for your child when you file your 2021 return next year. Provided you are otherwise eligible to take the child credit, you can take a child tax credit of up to $3,600 for your baby on your 2021 Form 1040.

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Opting Out of Advance Payments

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Question: I know I will qualify for a child tax credit for 2021, but I don’t want to receive advance payments. Is there a way of opting out?

Answer: Yes. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return can do so now through the IRS’s Child Tax Credit Update Portal. You will first have to verify your identity before using the tool. If you already have an existing username, you’re set to go. People without an existing account will have to verify their identity with a form of photo identification using, a trusted third party for the IRS.

There are other reasons people may decide to opt out of the advance payments besides wanting to take the fully refundable child credit in one lump sum on their 2021 tax returns. For example, opting out is recommended for families who claimed the child credit on their 2020 return, but know they will not be able to do so for 2021 because their modified AGI will be too high. A divorced parent who claimed a child as a dependent in 2020, and whose ex-spouse is eligible to claim the child in 2021, should also look into opting out of advance child credit payments.

Note that there are deadlines for opting out if you want to cut off monthly payments before the next one arrives. To opt out before you receive a certain monthly payment, you must unenroll by at least three days before the first Thursday of the month in which that payment is scheduled to arrive. It is now too late to opt out of the July 15 payment, but if you want to opt out of the next five monthly payments, you’ll have to go on the IRS’s Child Tax Credit Update Portal and unenroll no later than August 2. For more details on when to opt out and a full schedule of the opt-out deadlines, see When to Opt-Out of Monthly Child Tax Credit Payments.

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Not Required to File Tax Returns

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Question: I do not file tax returns because my income is below the threshold required to file. Will I still qualify for the advance monthly payments?

Answer: Yes, but you’ll have to jump through a few hoops if you didn’t use the IRS’s online tool for non-filers in 2020 to provide information to the tax agency for purposes of qualifying for stimulus payments. That tool was called the “Non-Filers: Enter Payment Info Here” portal.

The easiest way to do this is to use the IRS’s Non-Filer Sign-Up Tool on the agency’s website. If you want your payments directly deposited into your bank account, which is faster than getting a paper check, you can also provide your account information through the tool. If you use the Non-Filer Sign-Up Tool, you’ll be asked to provide personal information such as your name, address, email, date of birth and Social Security number (or other taxpayer identification number). If you want your payments by direct deposit, you’ll also have to give your bank account number, account type and routing number.

The IRS hopes most non-filers will go online and use its Non-Filer Sign-Up Tool. But it also has alternative procedures for people who want to file a simple return. The IRS will accept simple returns on Form 1040 or Form 1040-SR filed electronically or on paper. But you don’t have to fill out the entire return. Instead, you will only need to include your filing status, your identifying information (name, address and Social Security number) and that of your spouse, provide information about your children and dependents, and follow the rest of the IRS’s instructions. Alternatively, if you had no AGI for 2020, you may electronically file a regular Form 1040 or 1040-SR return. For a complete rundown of the IRS instructions for simple returns and zero AGI returns, see Child Tax Credit 2021: How to Get Monthly Payments if You Don’t File Tax Returns.

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Social Security Numbers for Children

picture of three Social Security cardspicture of three Social Security cards

Question: My child doesn’t have a social security number. Can I claim the child credit or get advance payments?

Answer: No. The American Rescue Plan didn’t eliminate the requirement that only children with Social Security numbers qualify for the child credit. You must put your child’s name, date of birth and Social Security number on the Form 1040.

Although children must have Social Security numbers, you can have either a Social Security number or an individual taxpayer identification number.

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Offset for Back Taxes or Child Support Arrears

picture of man's hand hold a note saying "pay child support"picture of man's hand hold a note saying "pay child support"

Question: Will monthly payments be reduced for taxpayers who owe back taxes or child support?

Answer: No. The IRS cannot take the payments to offset past-due federal taxes, state income taxes, or other federal or state debts. The same goes for people who are behind on child support payments. However, there are no protections against garnishment by private creditors or debt collectors.

Although the advance monthly payments can’t be offset, the same rules don’t apply to a tax refund applicable to the child tax credit taken when you file your return next year. For example, if your actual 2021 child credits exceed the monthly payments you received, the difference may be refundable but can also be offset by back taxes, past-due child support, etc.

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Taxation of Advance Payments

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Question: Do I have to pay tax on the payments I get?

Answer: No. The payments that you receive are advance payments of the 2021 child tax credit, so they are not taxable. On your 2021 Form 1040 that you file next year, you will reconcile the monthly payments that you receive from the IRS in 2021 with the child tax credit that you are actually entitled to.

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Reconciliation of Advance Payments

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Question: How do I reconcile the advance payments I get with the actual credit I am entitled to?

Answer: When you fill out your 2021 Form 1040 next year, you will compare the total amount of advance child tax credit payments that you received for 2021 with the amount of the actual child tax credit that you can claim on your 2021 return. Don’t worry if you forgot the amount of advance child tax credit payments you got in 2021. The IRS will mail out a notice by January 31, 2022, showing the total amount of payments made to you during 2021. You should keep this letter with your tax records to help you fill out your 2021 return.

If the amount of the credit exceeds the payments you receive, you can claim the excess credit on your 2021 Form 1040. If the credit amount is less than the payments you got, you may or may not have to pay the excess back.

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Paying Back Overpayments

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Question: Do overpayments of the child credit need to be paid back?

Answer: It depends. With advance payments of the child tax credit, there will sure to be instances in which families receive more in advance child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplates this by providing a “safe harbor” for lower- and moderate-income taxpayers.

Families with 2021 modified AGIs at or below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return won’t have to repay any credit overpayments that they get. On the other hand, families with 2021 modified AGIs of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return will need to repay the entire amount of any overpayment when they file their 2021 tax return next year. And families with 2021 modified AGIs between these thresholds will need to repay a portion of the overpayment.

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Post-2021 Child Tax Credit

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Question: Will the higher child tax credit and advance payments eventually be made permanent?

Answer: Yes, if Democratic lawmakers get their way. Remember that the child tax credit expansions apply only for 2021. Congressional Democrats would like to see the enhancements made permanent, touting the impact that a higher and fully refundable child tax credit would have on reducing child poverty in the United States. For example, Congressman Richard Neal (D-MA), the Democratic Chairman of the House Ways & Means Committee, said the 2021 child tax credit enhancements are unlikely to go away, and he has unveiled proposed legislation to permanently extend those expansions. President Biden has also jumped on the child tax credit extension bandwagon. His proposed American Families Plan would extend the expanded credit through 2025, though he would make full refundability, and we assume advance payments, permanent.

If the 2021 child tax credit expansions are not made permanent, or at least temporarily extended past 2021, then the rules that applied for 2020 returns will kick back in beginning in 2022.


Who Won’t Get Monthly Child Tax Credit Payments (Not Every Parent is Eligible)

Parents all over the country have been patiently waiting for monthly child tax credit payments ever since they were announced in March. These payments, which can be as high as $300-per-child each month, have the potential to keep millions of American families out of poverty. However, while the wait is almost over for most parents (monthly payments will start on July 15), some people are going to be very disappointed when they don’t receive any money from the IRS.

The monthly payments are really just advance payments of the child tax credit you would otherwise claim on your tax return. You’ll get half the total credit amount in six monthly payments from July to December this year, and then claim the other half when you file your 2021 tax return next year. In most cases, the IRS will determine your eligibility for and the amount of your child tax credit and advance payments based on either your 2020 or 2019 tax return, whichever one was most recently filed. (The IRS also has an online tool that helps you determine if you’re eligible.)

If your family doesn’t receive monthly payments, it could be due to your family income, child’s age, place of residence, or some other disqualifying factor. To help you figure it all out, here’s a list of common reasons why you might not get monthly child tax credit payments from the IRS. Hopefully, you get a payment on July 15 if you’re expecting one, especially if you’re one of the millions of Americans still struggling financially because of the pandemic. But if you don’t, it’s easier to plan your next move if you know why you were left out.

(For complete coverage of the 2021 child tax credit, including more information about the monthly advance payments, see Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs.)

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Your Child is Too Old

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To qualify for the 2021 child tax credit – and, therefore, for the monthly payments – your child must be 17 years old or younger at the end of the year. That’s actually one year older than what was permitted in previous years. So, if your kid turns 17 in 2021, you get to claim the child tax credit for him or her one more time. But if your child is 18 or older at the end of this year, you can’t claim the credit or receive monthly payments for him or her.

You may not be completely out of luck if you have a dependent child who is over the age limit, though. While you’re not eligible for the child tax credit or advance payments, you may be able to snag an extra $500 when you file your 2021 tax return next year by claiming the credit for “other dependents.” This alternative credit may even be available if your kid is in college.

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Your Child Was Born in 2021

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Assuming you’re otherwise eligible, you can claim the 2021 child tax credit if you have a baby this year. However, you still might not get monthly advance payments for the child because the IRS doesn’t know about your new bundle of joy. The tax agency is looking at previous tax returns to see who is eligible for monthly payments. If they don’t see a child on your 2020 or 2019 return, whichever was filed most recently, they’re not going to send you monthly payments.

The good news is that the IRS will have a solution for this problem later in the summer when it updates the Child Tax Credit Update Portal to allow you to add qualifying children you will claim on your 2021 tax return. Once the IRS is aware of your new son or daughter, it can adjust your estimated 2021 child tax credit and then adjust the amount of your monthly payments.

If you don’t use the IRS portal later this year to add your child, you can still claim the full amount of your allowable child tax credit for that child when you file your 2021 tax return next year. So, you won’t lose any money…but you’ll have to wait to get it.

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Your Income is Too High

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For 2021, the child tax credit is worth $3,000-per-child for children ages 6 to 17 and $3,600-per-child for kids who are 5 years old or younger. That translates to maximum monthly payments of $250-per-child or $300-per-child, respectively.

However, the child tax credit is phased-out for people at certain income levels (based on your 2020 or 2019 tax return). If your total credit is reduced, so will your monthly payments. If your income is high enough, your credit and monthly payments will be completely phased out and you’ll get nothing!

There’s a complicated system under which your credit and payments can be phased-out in two different ways. Without going into too much detail, you’re at risk of an initial reduction if the modified adjusted gross income (AGI) on your most recent tax return is above $75,000 for single filers, $112,500 for head-of-household filers, and $150,000 for married couples filing a joint return. During this step, your total credit can’t be reduced below $2,000-per-child, which means your monthly payment won’t be less than $167-per-child. The second phase-out can totally wipe out your credit and monthly payment if your modified AGI exceeds $400,000 on a joint return or $200,000 on other returns. (Use our 2021 Child Tax Credit Calculator to see how your income can impact your credit and advance payments.)

If your income changes in 2021, you’ll be able to let the IRS know later this summer using the Child Tax Credit Update Portal. If this year’s income is lower than in 2020 (or 2019), then your monthly payments may increase after using the online portal. If your 2021 income increases, make sure to let the IRS know that, too. You don’t want to receive more in monthly payments than what you’re entitled to, because you then risk having to pay it back next year when you file your 2021 tax return.

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You Haven’t Filed a Recent Tax Return

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As mentioned above, the IRS will base monthly payment amounts on your 2020 or 2019 tax return in most cases. But not everyone is required to file a tax return. So, if you haven’t filed a recent return, will you still get monthly child tax credit payments?

It depends. If you used the IRS’s “Non-Filers: Enter Payment Info Here” portal last year to claim a first-round stimulus check, your monthly payments will be based on the information you provided through the tool. However, if you didn’t use the non-filers tool last year and you want to receive monthly payments, you need to use the new Child Tax Credit Non-Filer Sign-Up Tool, file a “simplified” return or zero AGI return using the IRS’s special procedures, or file a normal 2020 tax return. If you don’t act now, you won’t receive any advance child tax credit payments. (For more information, see How to Get Child Tax Credit Payments if You Don’t File a Tax Return.)

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You or Your Child Don’t Have a Social Security Number

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Many changes were made to the child tax credit for the 2021 tax year. The credit amount was increased, it’s fully refundable, 17-year-old children qualify, and, of course, advance payments were authorized. But there are other requirements from previous years that weren’t changed. For instance, you still can’t claim the child tax credit, or get monthly payments, for a kid who doesn’t have a Social Security number.

Your child’s Social Security number must also be “valid for employment” in the U.S. and issued by the Social Security Administration (SSA) before the due date of your 2021 tax return (including extensions). If your child was a U.S. citizen when he or she received the Social Security number, then it’s valid for employment in the U.S. If “Not Valid for Employment” is printed on the child’s Social Security card and his or her immigration status has changed so that of a U.S. citizen or permanent resident, ask the SSA for a new Social Security card. If “Valid for Work Only With DHS Authorization” is printed on the card, your child has the required Social Security number only as long as the Department of Homeland Security authorization is valid.

You, and your spouse if you’re married, must also have a Social Security number or an Individual Taxpayer Identification Number (ITIN) to claim the child tax credit and receive advance payments. In addition, you’ll only receive monthly payments only if you used your correct Social Security number or ITIN when you filed your 2020 or 2019 tax return or entered information into the IRS’s non-filer tool in 2020 to receive a first-round stimulus check.

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Your Child is a Nonresident Alien

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Your child must be either a U.S. citizen, U.S. national, or U.S. resident alien for you to claim the child tax credit or receive monthly advance payments. There is one exception: If you’re a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, the child is considered a U.S. citizen for child tax credit purposes.

Generally, a “resident alien” either has a green card or is physically present in the U.S. for a certain amount of time. A “U.S. national” is someone individual who, although not a U.S. citizen, owes his or her allegiance to the United States. American Samoans and Northern Mariana Islanders can also choose to be a U.S. national instead of a U.S. citizen.

See IRS Publication 519 for more information on the taxes for U.S. nationals and resident aliens.

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Your Ex-Spouse Claimed Your Child as a Dependent Last Year

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If the IRS looks at your ex-spouses 2020 tax return and sees that he or she claimed your child as a dependent on that return, your ex is going to get the monthly child tax credit payments starting July 15 – even if you will claim the child as a dependent for 2021. You’ll be able to correct this when the IRS updates its Child Tax Credit Update Portal later this summer, but until then you won’t see any advance payments. Once you revise your information in the portal, the IRS will adjust your estimated 2021 child tax credit and start sending you monthly payments.

If the tables are turned and you’re receiving monthly payments even though your ex-spouse will claim your child as a dependent for the 2021 tax year, you should consider using the portal now to opt-out of the payments. That will reduce the risk of having to repay any advance child tax credit payments when you file your 2021 tax return next year.

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You Live Outside the U.S.

picture of a family in Paris near the Eiffel Towerpicture of a family in Paris near the Eiffel Tower

To receive monthly child tax credit payments, you (or your spouse if you’re filing a joint return) must have your main home in the U.S. for more than half of 2021 or be a bona fide resident of Puerto Rico for the year. Your main home can be any location where you regularly live, as long as it’s in one of the 50 states or the District of Columbia. Your main home can be a house, apartment, mobile home, shelter, temporary lodging, or other location. It doesn’t have to be the same physical location throughout the year, either.

You also don’t need a permanent address to get monthly payments. If you’re away from home temporarily because of illness, education, business, vacation, or military service, you’re still generally considered to be living in your main home for child tax credit purposes.

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You Can Be Claimed as a Dependent

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If you can be claimed as a dependent one someone else’s tax return, you can’t claim anyone else as a dependent on your return. If you’re filing a joint return and your spouse can be claimed as a dependent by another person, you and your spouse can’t claim any dependents on your joint return.

If you can’t claim your child as a dependent because of this rule, you can’t claim the child tax credit for him or her. If you can’t claim the child tax credit, you’re not eligible for advance payments of the credit. So, if you can be claimed as a dependent on another person’s tax return, then you won’t receive monthly payments.

This is one of the rules for 2021 that was carried over from previous years.


Preapproved vs. Prequalified: What’s the Difference?

What does it mean to be prequalified or preapproved for a mortgage? The two words are often used interchangeably, but they aren’t the same thing and don’t carry the same weight when a hopeful homeowner is ready to buy.

Here’s a look at how these two steps vary, how each can play a significant part in any home buying strategy, and how one in particular can increase the chances of having a purchase offer accepted when there are multiple offers on a house.

Getting Prequalified for a Mortgage

Getting prequalified is a relatively quick and easy process.

You, the mortgage applicant, provide a few financial details to a lender. The lender uses this unverified information, usually along with a soft credit pull, to let you know approximately how much you may be able to borrow and at what terms.

Because prequalification is an estimate of what the lender thinks you can probably afford based on the data input, the lender may ask some clarifying questions around income, assets, employment, and debt. You likely won’t be asked to provide any documentation at this point, so it’s pretty painless.

Getting prequalified can give an applicant a general idea of loan programs and the amount they may be eligible for.

But because the information provided has not been verified, there’s no guarantee that the loan or amount will be approved.

That doesn’t make this step irrelevant, though. Prequalification can help you in a few ways.

•  It can give you an idea of how much house you can afford.

•  It can alert you to loan programs you may be eligible for.

•  It can tell you what your monthly payment might look like when you do get approved for a mortgage.

It might be tempting to blow through this step by providing incomplete or embellished financial information to lenders—or to skip the prequalification process entirely. But who wants to fall in love with a house they can’t potentially afford? And who wouldn’t want to weed out any mortgage programs or lenders that don’t suit their needs?

Mortgage LoanMortgage Loan

Getting Preapproved for a Mortgage

Once you decide on a mortgage lender or lenders, you can begin the preapproval process.

Preapproval typically takes longer than prequalification and requires a thorough investigation of your income sources, employment history, assets, credit history, and other financial commitments and debts.

Verification of this information, along with a hard credit pull from all three credit bureaus, allows the lender to complete a preapproval of the loan before you shop for an eligible property.

When seeking preapproval, besides filling out an application, you may be asked to submit the following to a lender for verification:

•  Social Security number or some other form of identification

•  Two most recent pay stubs

•  W-2 statements for the past two years

•  Tax returns from the past two years

•  Sixty days’ worth of documentation (or a quarterly statement) of the activity in checking, savings, and investment accounts

•  Residential addresses from the past two years, including contact information for rental companies or landlords, if applicable

The lender may require backup documentation for certain types of income in order to qualify for a mortgage. For example, rental property owners may be asked to show lease agreements. Freelancers may be asked to provide 1099 forms, bank statements, a profit and loss statement, a client list, or work contracts.

Buyers also can expect to have to explain negative information that might show up during a credit check. (To avoid any surprises, proactive buyers can get annual free credit reports from A credit report shows all balances, payments, and derogatory information but does not give credit scores. It may help potential borrowers identify and amend errors before applying for a loan.)

Those who have filed for bankruptcy in the past may have to show documentation that it has been discharged. Applicants face a waiting period, which varies with the lender and whether they are seeking a conventional vs. government home loan, after a bankruptcy dismissal or discharge and before being eligible for new loan approval.

The lender will need to verify the amount and source of the down payment you plan to provide. If your parents are kicking in some cash, for example, the lender will ask for a gift letter that confirms that the money is a gift and not a loan. Some loan programs may require you to contribute a certain amount of your own money (sometimes 5%) to the loan before a gift can be applied. Generally, investment properties are not eligible for gift funds.

Those taking a loan or withdrawal from a 401(k) also typically will have to show the paperwork. And any sudden changes in finances may have to be explained—so it’s important to have a paper trail.

Three Reasons to Get Preapproved

Sounds like a lot of work, right? But preapproval has at least three selling points:

1. Preapproval lets you know the specific amount you are qualified to borrow from the lender, instead of just an estimate. You can always purchase a house for less than the preapproved amount.

2. Going through preapproval before house hunting could take some stress out of the loan process by breaking up the borrower and property underwriting portions of the loan. Underwriting, the final say on mortgage approval or disapproval, comes after you’ve been preapproved, found a house you love and agreed on a price, and applied for the home loan.

3. Being preapproved for a loan helps to show sellers that you’re a vetted buyer. The lender can provide a preapproval letter that indicates the willingness to lend you a particular amount, and the interest rate and fees you can expect to pay on that loan (though it’s not a guarantee that you’ll get the loan).

Depending on the real estate market, sellers might receive offers from multiple buyers. Having a preapproval letter could improve the chances that your offer will be selected, especially if other offers lack a preapproval letter.

The letter tells the seller that your credit, income, and assets have been reviewed and approved by a lender to move forward and that if the property is eligible, the loan should close with no issues to derail the purchase.

Time Is of the Essence

A preapproval letter usually expires in 90 days because pay stubs, bank statements, and so on are considered dated after 90 days.

If the information needs to be updated and reverified after that point, the preapproval letter can be reissued with a new expiration date.

If you’re seeking loan preapproval, you may benefit from mortgage rate shopping within a focused period—generally 14 to 45 days, varying by the credit score model each lender uses—to avoid dragging down your credit score.

If you apply for mortgages with several lenders within the condensed time frame, and each makes a hard pull of your credit, it will count as just one hard inquiry.

Finalizing the Mortgage Application

After you find the house you want to purchase and the seller has accepted the offer, the next step is to finalize your mortgage application and move toward final loan approval.

You don’t have to choose a mortgage from the same place a preapproval letter came from.

Once the lender receives the property appraisal and title report, a loan underwriter reviews the data and issues a loan commitment letter or final approval. This means that the loan has been fully approved and a closing date can be scheduled.

The lender may perform another credit check right before a loan closes. Applying for any new credit cards or auto loans, or making large credit purchases during the home buying process could affect final mortgage approval.

Some borrowers choose to lock in the interest rate offered by the lender once they find a home they want to buy. This freezes the mortgage rate for a predetermined period.

It’s a good idea to verify the time period to make sure the rate is in effect through the escrow closing date, and to review the fully executed purchase contract with the lender for closing and loan contingency timelines to be sure contract dates can be met.

Finally, even if you pass the loan approval process with flying colors, the home being purchased might not. The lender will likely order an appraisal to be sure the selling price is accurate and that the property type (single-family home, farm, etc.) and condition are eligible for home loan financing.

If the sales price is higher than the appraised value, you may have to go back to the negotiating table, walk away from the deal, or come up with cash to make up the difference.

What If My Preapproval Didn’t Pan Out?

Being turned down for a mortgage—or not being able to borrow as much as expected—can be disappointing. But it doesn’t have to put a stop to home buying hopes.

If you are in that boat, you might want to try to understand why you were not eligible.
You could:

•  Consider another loan product or lender where you might meet the lending criteria.

•  Work on improving whatever put a damper on your home loan qualification.

•  Find a home that’s better suited to your budget if you were preapproved for a lower loan amount than expected.

The Takeaway

Preapproval vs. prequalification: If you’re serious about buying a house, do you know the difference? Getting prequalified and then preapproved may increase the odds that your house hunt will lead to homeownership.

SoFi offers a range of fixed-rate mortgage loans with competitive rates and low down payment options.

Looking at investment properties? SoFi has loans for those, too.

It’s a snap to get prequalified and view your rate.

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Untangling Your Finances When You Divorce: Don’t Forget These Important Details

Divorce is an emotional time for everyone involved, but neglecting diligent follow up can impact your finances. There are several areas that can easily be overlooked when you are constantly having disagreements, child custody battles and alimony issues.  Whether it is the husband or wife who has been in charge of the finances, it is important for both spouses to get familiar with their planning.

Let’s break up the task of untangling years of intermingled finances into three parts.

Part 1 of the Law of Division: Your Accounts

Get Your Home Title and Mortgage Squared Away

The largest asset to deal with in a divorce is usually the house.  If the house needs to be sold, keep in mind there may be a large capital gain on the property, which needs to be accounted for.

Who is on the mortgage? Does one spouse need to come off the liability? This may be easier said than done, but most banks will require a new loan in the name of the party who gets the home. If the person granted the home in the divorce cannot qualify for a new loan, this can be a problem. Banks allow loan assumptions for several reasons, but the process is similar to getting new financing.  Avoid removing your name from the title before the liability is released.

If you are not granted the house or other real property, but your name is still on these assets, you are still subject to liability if something happens. For example, if a natural disaster damages your property  or a leak damages a neighbor’s property, you can potentially get sued just from being listed on the title. An umbrella insurance policy is fairly low cost and can help in these circumstances.   

You are also still liable for any maintenance fees or assessments that are not paid, along with property taxes, if your name remains on the title. If your former spouse fails to pay these fees on time, this can hurt your credit.

Undo Any Joint Bank and Brokerage Accounts

 “Removing” a joint owner on an account is easier said than done.  After divorce you will need to open individual or trust accounts and close existing joint accounts.  This requires ordering new checks, relinking and direct deposits or EFT payments. If you have retirement accounts, the court may issue a QDRO (Qualified Domestic Relations Order), which will allow splitting these assets and putting half in the other spouse’s name.  It is important to check the beneficiaries on IRAs after divorce to make sure the beneficiary is not the former spouse (unless that is what you want).  Same thing with your retirement savings account at work: The beneficiaries on your company 401(k) can easily be overlooked, since statements may be sent annually.

 You should make sure any individual accounts have a transfer on death listed. This is the person the account will go to if you pass away.  If you have any joint credit cards, you may want to cancel them.  If the joint account is linked to any other individual accounts you may have, you will probably want to unlink it.

Setting up a trust for minor children should also be discussed with your estate attorney.

Check Your Credit Reports

If your spouse has been dealing with the finances and most of the bills and credit is in their name, you will need to establish your own credit. You want to make sure your name is not on anything belonging to your former spouse just in case a payment is missed, otherwise your credit could suffer.

Part 2 of the Law of Division: Examine Your Insurance


Do You Now Have More Home Insurance Than You Need?

Oftentimes, property and casualty policies may be issued in the name of one spouse. This is usually the case with homeowners insurance. If you receive property from a divorce, you should make sure the policy has your name on it in the event of a claim.  It would also be prudent to inventory your personal property after the split, as you may be paying a higher premium when you now only need half the coverage.

 For example, if you move from a four-bedroom house with $60,000 content coverage to a two-bedroom, you may only need $30,000 worth of coverage. You could also be paying extra for valuables, such as jewelry and art, belonging to your former spouse, so it is important to re-evaluate your policy.

Prepare for Rising Car Insurance Rates

Your car insurance rates may increase. This is due to marriage discounts the insurance companies provide. Being married indicates some stability to the insurance companies and lowers your insurance premiums. You will also have to remove any stacked coverage if you no longer have two or more cars in the household.  If your address changes or the “housing” for the car changes, this could also affect your premiums. For example, if your car moves from a secure garage to an outdoor parking spot, this could cause your premium to rise, depending on the carrier.

Life Insurance Issues to Consider

You may have various life insurance policies, maybe some with your employer. Check the beneficiaries to make sure they are in line with your desires.  If you want minor children as beneficiaries, you may need to set up trusts.  You should also revisit your estate plan with your attorney to make sure your trusts don’t list your former spouse as trustee (unless that is your desire).  

It may also make sense to get term insurance coverage on the spouse who pays child support until the children are old enough to sustain themselves.  The spouse who receives the child support should be the beneficiary of this policy.

How about Health Insurance?

If health insurance is provided by the employer of one of the spouses, how will the other spouse get coverage after the divorce? Are the dependents covered under that policy? This can be a financial hardship if the other spouse has to go and find individual coverage on their own.

Part 3 of the Law of Division: Taxes & Financial Planning

Filing Taxes as Single Can Take a Toll

Your tax-filing status will be your status as of the end of the year. This may cause your taxes to increase or lead to an additional liability. If you are a W2 employee and have been withholding for most of the year based on being married, you may end up under-withholding if you now have to file as single. Married people get more tax breaks, so you could unexpectedly end up forking more over to the government. It is possible that you have been making estimated payments for that year, if so, who gets the benefit?

Also, if mortgage interest and property taxes were paid for that year, who gets to use the deductions? It is important to discuss these things up front as they can trigger audits if they are deducted on both tax returns. This is especially true with listing dependents – if both spouses list the same child as a dependent, you can get in trouble with the IRS.

Retirement assets do not have the same value as after-tax assets – this should be kept in mind when splitting up assets. Uncle Sam owns a share of traditional IRA and retirement accounts. Work with your accountant/CPA to make sure these items are handled correctly.

Reconsider Your Financial Plan and Investment Allocation

After your divorce, can your financial plan work separately? Things are likely going to get tighter for both spouses because paying for one household may change to paying for two. Income in retirement may also decrease with respect to pensions and social security income.

If your income is significantly lower than your spouse’s, you are going to need to re-evaluate your budget and goals. Who is responsible for the children’s education?  What goals do you now have as a single person?

Having a budget for each spouse and knowing what each person needs to survive alone should be calculated. There is no point in keeping a home or property you cannot afford to support alone.

Time for a New Risk Analysis

You may have done a risk analysis with your spouse and come up with an investment allocation together. At this point your risk tolerance may have changed significantly or may be different to your collective results. You may need to go through the risk-analysis process again, which could lead to a change in your overall asset allocation.

Senior Financial Adviser, Evensky & Katz/Foldes Financial Wealth Management

Roxanne Alexander is a senior financial adviser with Evensky & Katz/Foldes Financial handling client analysis on investments, insurance, annuities, college planning and developing investment policies. Prior to this, she was a senior vice president at Evensky & Katz working with both individual and institutional clients. She has a bachelor’s in accounting and business management from the University of the West Indies, she received an MBA at the University of Miami in finance and investments.


Claiming the Child Tax Credit – Everything You Need to Know in 2021

Raising a child isn’t cheap. According to a 2019 analysis by EverQuote, it costs about $2,319,162 to raise a family in the United States, including providing common family expenses like housing, food, transportation, insurance, child care, and vacations. For parents, tax season is a chance to recoup some of those costs.

There are several parental tax deductions and credits available to eligible families. Some are only available to parents who pay day care costs or higher education expenses. But the child tax credit doesn’t require parents to cover any particular costs.

Given the 2021 tax code changes, it’s time to look into how to claim this valuable federal income tax credit and how much it’s worth.

Who Can Claim the Child Tax Credit?

For the 2021 tax year, the American Rescue Plan Act temporarily increased the child tax credit (CTC), making it worth up to $3,000 per child (or $3,600 per child under age 6). That’s an increase over the previous maximum of $2,000 per child for the 2020 tax year.

To qualify, the child must meet the following requirements:

  • Is a son, daughter, stepchild, adopted child, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of these — for example, your grandchild, niece, or nephew
  • Is under the age of 18 at the end of the tax year
  • Is a U.S. citizen with a Social Security number (SSN)
  • Did not provide more than half their own support during the tax year
  • Lived with you for more than half the year
  • Is claimed as a dependent on your federal tax return
  • Does not file a joint return with a spouse or files it only to request a refund of withheld taxes

The CTC can only be claimed once per child per year. For example, in the case of divorced parents who both qualify to claim one child as a dependent, only one can claim the child and take advantage of the CTC. If both parents try to claim the child, the IRS will apply tiebreaker rules to determine who gets to claim the dependent. The IRS explains those tiebreaker rules in detail in Publication 501.

Limitations on the Child Tax Credit

The purpose of the CTC is to help parents who need it, so the credit phases out for taxpayers with higher incomes.

If you’re a single taxpayer with an adjusted gross income (AGI) over $200,000 or a married-filing-jointly taxpayer with an AGI over $400,000, the IRS reduces your credit by 5% of your AGI. There’s no credit if your AGI is over $240,000 for single filers or $440,000 for married couples.

Refundable Portion of the Child Tax Credit

As the name suggests, the CTC is a tax credit, meaning it is a dollar-for-dollar reduction in the amount of tax you owe. If your available child tax credit exceeds your taxes owed, you can receive the remaining credit amount back as a tax refund. This refundable portion is also known as the additional child tax credit (ACTC).

In prior years, only $1,400 of the CTC was refundable.

If you believe you qualified for the CTC or the ACTC in a previous tax year and forgot to claim it, you can amend your original tax return for up to three years from the date you filed the return and get a refund of the tax you overpaid.

Advance Child Tax Credit Payments

Another change for 2021 is that the IRS will distribute half the credit in advance of the 2022 filing season (when taxpayers file their 2021 tax returns).

For children 5 and younger, eligible families can receive up to $300 monthly in advance. For children ages 6 to 17, families can receive up to $250 monthly in advance.

That amount could change based on your income. Families are eligible for the total amount if their modified AGI is under:

  • $150,000 for married couples filing jointly
  • $112,500 for head of household
  • $75,000 for single filers and married couples who file taxes separately

If your income exceeds those limits, the IRS will reduce your advance payments by $50 for every $1,000 over the listed limits.

To qualify for the advance child tax credit payments, you (and your spouse if you file a joint tax return) must have:

  • Filed a 2019 or 2020 tax return and claimed the CTC on your return, or
  • Provided your information to receive economic impact payments (aka stimulus checks) using the non-filers payment info tool (which is now closed)

The IRS announced it would start issuing payments on July 15, 2021, and payments will continue monthly on the 15th of each month. The IRS will direct-deposit monthly payments into the bank account where you received your 2020 or 2019 tax refund or mail it to the address on your tax return if the IRS doesn’t have your bank account information.

You can claim the other half of the credit on your 2021 income tax return.

You can check to see whether you’re eligible for advanced payments using the IRS’s Advance Child Tax Credit Eligibility Assistant. You also have the option of unenrolling from advanced payments. That can be a suitable option if you expect to owe tax or won’t be claiming a dependent child on your 2021 tax return. To opt out, use the Child Tax Credit Update Portal at

Credit for Other Dependents

If you have a dependent who doesn’t meet the requirements to claim the CTC, you may still be able to claim the credit for other dependents. For instance, you can claim this credit for:

  • A child who does not have an SSN but does have a Taxpayer Identification Number
  • A child who is age 18 or age 19 to 24 and in school
  • Other older dependents, such as an elderly parent

The maximum credit for other dependents is $500, and it has the same phase-out threshold as the CTC.

You cannot claim both the child tax credit and the credit for other dependents for the same dependent. But you can claim the child and dependent care credit in addition to the CTC or the credit for other dependents if you paid eligible day care expenses for your dependent. You can also claim the earned income tax credit (EITC) if you qualify.

Claiming the Child Tax Credit on Your Tax Return

You claim the CTC or the credit for other dependents on Line 19 of your 2021 Form 1040. You can calculate your allowable credit using the worksheet included in IRS Publication 972. If you are eligible to claim the refundable additional child tax credit, you must also complete Schedule 8812 and attach it to your Form 1040.

But if you use tax-preparation software from someone like TurboTax, the software calculates the credit and attaches the necessary forms for you.

Some states also offer a complimentary child tax credit that can reduce your state income tax. The credit is refundable in some states and nonrefundable in others. To learn more about the available credit in your state, check out the state-by-state guide maintained by the nonprofit organization Tax Credits for Workers and Their Families.

Future of the Child Tax Credit

The American Rescue Plan Act’s changes to the CTC only apply to the 2021 tax year. Unless Congress extends these changes, the higher credit amount and advanced payments will disappear after this year.

Additionally, the Tax Cuts and Jobs Act of 2017’s changes to the CTC expire after 2025 unless Congress extends them or makes them permanent. After that, the CTC reverts to its previous form:

  • The credit will start to phase out once your AGI exceeds $75,000 for single filers or $110,000 for married couples
  • The maximum credit will be $1,000
  • The credit for other dependents will disappear
  • You will need to have at least $3,000 of earned income to qualify for the credit

You can read more about the child tax credit and the credit for other dependents as well as calculate your available credit in IRS Publication 972.

Final Word

Raising kids is a pricey endeavor, so pay close attention to any tax benefits that can help you offset those costs by reducing your tax liability.

The nonpartisan Tax Policy Center estimates the child tax credit delivers about $130 billion in benefits to families with children. So familiarize yourself with the rules for claiming the credit and take advantage if you’re able.

And don’t forget that if you have questions about claiming this tax credit on your tax return, you can use a tax preparation company like TurboTax. They have live CPAs available to answer your questions.