Resources and information on the Child Tax Credit (CTC) and the Child and Dependent Care Tax Credit (CDCTC) in the American Rescue Plan Act of 2021 for parents of The Learning Experience. These expanded, increased and refundable tax breaks apply for the 2021 tax year, and an individual or household can claim both.
Child Tax Credit (CTC)
Beginning in tax year 2021 (the taxes you file in 2022) the Child Tax Credit will be expanded. The bill increases the amount that families claiming the Child Tax Credit receive from $2,000 to:
- $3,600 for each child under 6
- $3,000 for each child age 6-17
How much will I qualify for?
Visit Kiplinger’s 2021 Child Tax Credit Calculator to get an estimate of how much you’ll receive in advance form July – December 2021 (assuming monthly payments), and how much you’ll be able to claim as a CTC on your 2021 tax return.
This is a tax credit, which means it reduces your tax bill on a dollar-for-dollar basis. The Child Tax Credit is also refundable; that is, it can reduce your tax bill to zero and you might be able to get a tax refund check for anything left over.
You can either claim 100% of your 2021 Child Tax Credit on your taxes when you do your 2021 taxes (that’s the tax return due in April of 2022), or you can get 50% of that money now in cash and claim the other 50% on your taxes later.
Under the cash payment program, you get six monthly advance payments from the U.S. Treasury via direct deposit starting in July and running through December of 2021. For example, if you qualify for a $3,000 Child Tax Credit, you could get six $250 payments between July and December (for a total of $1,500) and then claim the remaining $1,500 on your taxes.
There is an income phase out for the expanded credit, as illustrated in the figure “Child Credit Amount for One Young Child 0-5 years old), 2021”. Generally, this increase in the maximum child credit of $1,600 per young child (0-5) would gradually phase out at a rate of 5% as income exceeded specified thresholds until the credit amount equaled the current-law maximum of $2,000 per child. These thresholds are $75,000 for single filers, $112,500 for head of household filers, and $150,000 for married joint filers. The credit would then remain at its current-law level and phase out when income exceeded the current-law threshold of $200,000 ($400,000 for married joint filers).
Child and Dependent Care Tax Credit (CDCTC)
The American Rescue Plan provides even better news for parents with young children, as the Child and Dependent Care Tax Credit (CDCTC) is getting some major upgrades for 2021. The CDCTC is a federal tax credit that helps working families pay expenses for the care of children (such as child care).
The credit is calculated by multiplying a taxpayer’s eligible child care expenses by their “Applicable Percentage”, and both the expense amount and percentage factor will be increased for 2021. As a result, many taxpayers will receive dramatically larger Child and Dependent Care Tax Credits this year in comparison to previous years. Plus, those potentially much larger credit amounts will be fully refundable.
In 2021, Child and Dependent Care Tax Credit expansion would make the credit fully refundable and offer families a credit worth up to half (50%) of their child care spending, with a maximum credit value of $4,000 for one child and $8,000 for two or more children. The full credit would be available to families with annual incomes up to $125,000; above this income level, a partial credit is available for families up to annual incomes of $400,000.
How to claim?
Year-End Statement Information
The Learning Experience will provide you with your year-end statement when it becomes available for the year. This statement, along with your corresponding personal records and receipts for child care expenses, will be necessary for when you prepare your income tax returns and calculate the amount you will claim for the child tax credits.
Please contact your Center Director with questions regarding how to obtain your year-end statement.
Since the passage of the American Rescue Plan, the IRS is working to implement these changes for the 2021 tax season and will be publishing guidance and new filing information. We will update this page with the new IRS information when it is made available.
Also, the IRS is working to build an online portal that will allow tax filers who are eligible for the child tax credit to log in and update their tax information so that the parent claiming the child as a dependent for 2021 will get the advance CTC payments starting July 2021. You can also use the portal to opt out of the periodic payments if you want to take the full child credit on your 2021 return instead.
- H&R Block, “Coronavirus tax resource center: American Rescue Plan (ARP) Act of 2021 provisions that may benefit you”
- IRS, “Credit and Deductions for Individuals” (*Check back for updates to this page. IRS is reviewing the tax provisions of the American Rescue Plan Act of 2021, signed into law on March 11, 2021)
- IRS, “Coronavirus Tax Relief, Recovery Rebate Credit and Economic Impact Payments for Individuals and Families”
- Turbo Tax 2020 – 2021 Tax Calculators
- Fax Foundation, 3/12/2021, “The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021”
- Congressional Research Service, Report R46680, 3/8/2021, “The American Rescue Plan Act of 2021 (ARPA; H.R. 1319) Title IX Subtitle G—Tax Provisions Related to Promoting Economic Security”
- Smart Asset, 3/17/2021, “All About Child Tax Credits”
Child Tax Credit (CTC) Resources:
- Kiplinger, 3/11/2021, “2021 Child Tax Credit Calculator”
- Washington Post, 3/6/2021, “Calculate how much you would get from the expanded child tax credit”
- CRS Insight IN11613, 3/15/2021, “The Child Tax Credit: Temporary Expansion for 2021 Under the American Rescue Plan Act of 2021” (ARPA; P.L. 117-2), by Margot L. Crandall-Hollick
- NerdWallet, 3/15/2021, “Child Tax Credit 2021: How to Qualify & How Much It Is”
- Kiplinger, 3/11/2021, “Families Get a $3,000 Child Tax Credit for 2021”
- Business Insider, 3/24/2021, “All your questions about the child tax credit, answered”
- AS English, 3/14/2021, “$3,000/$3,600 Child Tax Credit per child: when will it arrive?”
- Kiplinger, 3/16/21, “Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs”
Child and Dependent Care Tax Credit (CDCTC):
- Congressional Research Service, Report R44993, 2/1/2021, “Child and Dependent Care Tax Benefits: How They Work and Who Receives Them”
- Kitces, 3/10/2021, “The American Rescue Plan Act Of 2021: Tax Credits, Stimulus Checks, And More That Advisors Need To Know!”
- SmartAsset, 1/21/2021, “All About IR Form 2441”
- Center on Poverty and Social Policy, Columbia University (Parolin, Zachary, Sophie Collyer, Megan A. Curran, and Christopher Wimer), 3/11/2021, “The Potential Poverty Reduction Effect of the American Rescue Plan”
- AS English, 3/16/2021, “Who will qualify for the Child and Dependent Care Credit”
Disclaimer: These communications are for informational purposes and should not be taken as legal or financial advice. We recommend consulting with your accountants, financial advisors and other attorneys for your specific circumstances regarding issues surrounding eligibility, forgiveness, and other matters.