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New Child Tax Credit Rules: What to Know

President Biden signed into law his first legislative act related to the COVID-19 crisis.  The  American Rescue Act of 2021 (ARPA) included an expanded 2021 child tax credit, aimed to help families with children endure the impacts of the COVID-19 pandemic. The Child Tax Credit, alongside a Recovery Rebate Credit (third stimulus) and several other kid-focused tax credits, can significantly reduce your tax bill this season if you meet the requirements imposed. The professionals at SD Associates, P.C. are sharing everything you need to know about the new tax credit and how it may affect your family. 


How Much You Get Per Child

Under the American Rescue Act, more money will be given to more families. The new 2021 child tax credit is a refundable tax credit that provides parents with up to $3,600 per qualifying child under 18. Parents who have children aged 6 to 17 will be provided with a $3,000 credit and those with children under the age of 6 will receive $3,600. This is up from $2,000 per dependent child up to age 16. The credit if fully refundable meaning low-income families who weren’t eligible for the previous benefits will now be eligible to receive the 2021 child tax credit.


The credit will be split; half will be paid through the tax refund and the other half will be paid in advance throughout the year, with payments ranging from $250 or $300 between the months of July and December. Families who are eligible will be required to claim the remainder of the credit on their 2021 tax return next April. It’s also important to note the child credit income limit. The credit begins to phase out when Adjusted Gross Income (AGI) reaches $75,000 for single filers, $150,000 for joint filers and $112,500 for head of household filers. High-earning families will still be eligible for the old $2,000 credit, which begins to phase out when AGI exceeds $200,000 for single filers and $400,000 for joint filers.

Who Qualifies for the 2021 Child Tax Credit?

Some other child-related eligibility requirements for the child tax credit include:

  •   You must have provided at least half of the child’s support during the last year, and the child must have lived with you for at least half the year (there are some exceptions to this rule; the IRS has the details here).
  •   The child cannot file a joint tax return (or file it only to claim a refund).
  • To take the Child Tax Credit for the 2020 tax year, the child has to be 16 or younger on December 31, 2020. To take the Child Tax Credit for the 2021 tax year, the child has to be 17 or younger on December 31, 2021.
  • Family income – the child credit income limit phases out at certain thresholds. The phase out threshold was $75,000 for single filers, $112,500 for head of household, and $150,000 for joint filers. For 2020 tax year $400,000 for married filing jointly, and $200,000 for everyone else.

New Child and Dependent Care Tax Credit Changes

For the 2021 tax year, the Child and Dependent Care Credit can get you up to 50% of up to $8,000 (up from $3,000 in 2020) of child care and similar costs for a child under 13, a spouse or parent who cannot care for themselves, or another dependent so that you can work and up to $16,000 of expenses for two or more dependents (up from $6,000 in 2020). This is a refundable credit.


If you’re looking for reliable tax services , look no further than the experts at SD Associates. We work closely with our clients to deliver cost-effective solutions and value-added services whether it is in accounting, auditing, consulting, or tax engagement. Connect with our team of professionals today to have all your tax questions answered.