The American Rescue Plan Act (ARPA) extended the child tax credit for the 2021 tax year only, allowing families to receive advance payments instead of claiming the full credit on their 2021 tax return. The purpose of the loan increase, along with monthly payments, is to help families affected by the COVID-19 pandemic and reduce child poverty in the United States
Starting July 15th, the IRS will begin issuing monthly advance payments to families as of 2020 or a 2019 tax return.
ARPA increased the child tax credit from $2,000 to $3,000 per child (ages 6-17) or $3,600 per child (ages 0-5). Advance payments will be made from July to December 2021. Advance payments will be up to 50 percent of the total loan amount, and the balance of the loan will be claimed on your 2021 tax return.
While the goal is to help as many families as possible, not every family will qualify for an extended loan. The enhanced child tax credit is reduced based on adjusted gross income and filing status in 2020 (or 2019 if 2020 has not yet been filed). Below is a table showing the amount per child and the amount of each monthly payment for an eligible family. The second chart shows the filing status along with the phase-out limit for each.
| Age | Loan amount | 50% of the loan | Monthly payment |
| 0-5 years | US$3,600.00 | $1,800.00 | $300.00 |
| 6-17 years old | $3,000.00 | $1,500.00 USD | $250.00 |
| Submission status | Gradual limit |
| Married filing jointly/qualifying widow | $150,000.00 |
| Head of the economy | $112,500.00 |
| Other | $75,000.00 |
Important note:
ARPA does not remove the pre-existing $2,000 child tax credit. This means that if you do not qualify for the increased amounts ($3,000 or $3,600) based on the above phase-out limits, you may still qualify for the $2,000 credit. A $2,000 loan would result in a monthly payment of $167. The remaining credit will be claimed on your 2021 tax return.
Starting July 1, the IRS will create an online portal on its website where you can update all of your information, such as marital status, children, and income. Payments will begin on July 15, 2021, so if you need to update any information, we advise you to do so as soon as the portal is live.
If you have questions about how this credit may apply to you, please feel free to contact one of our CPAs at (616) 642-9467 or ask free accounting consultations.
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