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Revised Child Tax Credit: Everything You Need to Know

When it comes to getting extra cash from the government, it’s been quite a year. First there was stimulus number one, then number two, and then number three—and it’s not over yet. If you have kids, listen up: You’re about to get some more dough through the increased Child Tax Credit. We know what you’re thinking, Isn’t that just at tax time? And the answer is: Yeah, normally. But not this year. And you don’t have to wait until tax time to see the money either.

Have we got your attention yet? Good.

Here’s what the new amped up Child Tax Credit means for you and your money.

What’s Going On With the Child Tax Credit? 

The Child Tax Credit took a big leap thanks to the American Rescue Plan this year. During a “normal” year, you can claim your kids and get a maximum tax credit of $2,000 for each qualifying child under age 17.1 That means if you owe income taxes, then the Child Tax Credit lowers your tax bill. And if it lowers it so much that now Uncle Sam owes you money, then you can get a refund of up to $1,400 per kid.2

Taxes shouldn't be this complicated. Let us help.

Usually, parents have to wait until after they file their taxes for their refund to come rolling in. But that’s all changing for your 2021 taxes (that you’ll file in 2022). If you opt in for it, you can get half of your refund paid to you up front starting in July 2021 and wrapping up by December 2021. The other half of your refund would be paid out to you after you officially file your 2021 taxes (like normal) next year.

The thought process here is families in need could get their hands on that refund money earlier and make more use of it to take care of their immediate needs now. It’s not a stimulus check, but it’s almost like it in a way—except this money is coming from the tax return money the government would already be giving to you at tax time. You’re just getting a slice of it sooner.

What Is the New Child Tax Credit Amount?

Here’s how the numbers break down: The American Rescue Plan bumps the Child Tax Credit up to $3,000 for children ages 6­–17 and $3,600 for children under age 6.3 Expecting a baby in 2021? First of all, congrats! And here’s some more good news for you—babies born in 2021 will qualify for the full $3,600. Have a college student? Parents can receive a one-time payment of $500 for each full-time college kid ages 18–24. 

So, for a family with three children, ages 12, 7 and 4, and a household income of $72,000 a year, their new Child Tax Credit would be $9,600.

But remember, instead of applying the full amount of the credit to income taxes they might owe or getting a refund after they file their taxes, parents can get the credit up front in monthly payments of $250 per qualifying child ($300 for children under age 6).4 So that family of three in our example would get $800 a month from July–December. Dang!

As it stands now, the change would be only for 2021—but there’s support in Congress and the White House for making it a permanent deal for the next five years under Biden’s American Families Plan. Yep, there are a lot of plans and acts to keep straight these days.

If the upped Child Tax Credit stuck around for the next five years that would add $15,000–18,000 per child to the pockets of American families.5 And if that does happen, it’ll be more important than ever to make sure you’re being intentional with that money. Now you might be wondering, how much will the total price tag be? A cool $1.6 trillion over the next 10 years.6 Yikes.

Who Is Eligible for the New Child Tax Credit? 

Qualifying for the new Child Tax Credit is based on a couple of things: Your income, the number of dependent children you have, and their ages. The IRS will base your eligibility on your 2020 taxes (so make sure you get those taken care of). If you need to make any changes to what they already have on file—like say, oh, you had a new baby or change of income in 2021—you can update your information through an online portal that will be available July 1. Well shoot—nothing like cutting it close there, but then again, that’s the government for you.

The Child Tax Credit will start to phase out for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.7

As a refresher, take a look at the Child Tax Credit Amounts for each age group again:

  • Age 0–5: $3,600
  • Age 6–17: $3,000
  • Age 18–24 (and enrolled in college full time): $500

Your dependents will have to meet some basic conditions too. Obviously there’s the whole age thing, but they need to be dependents that you claim on your taxes too. If you share custody of your children, the increased Child Tax Credit will go to the spouse who is claiming the kids for the 2021 tax year. You can’t both claim the same child. And if you do, you might have to repay all or some of it back to the government next year. That would be a drag, so make sure everything is on the up and up.

Should I Take the New Child Tax Credit in Monthly Payments or Wait for the Lump Sum?

The choice is yours—you can either opt in and get half your payment through July–December, or you can wait until tax time rolls around again and get it all in one lump sum then.

If you’ve already filed your taxes and want to get the advanced payments, you don’t have to do anything else. You’re all set. But if you don’t want these advanced payments, you’ll have to go through a few steps to opt out. The government says those details will be announced soon—stay tuned.

So should you or shouldn’t you? Honestly, those advance payments are a good way to keep more of your own money in your own pocket during the year. And we’re really big fans of that—but only if it doesn’t create a tax mess for you when it comes time to file your 2021 taxes.

If you’ve been around here for a while, you’ve probably heard us tell you to set up your tax withholdings so that you’re getting the most money you can in your paycheck. Which means you’ll be getting less money in your tax return each year (the goal is actually to get it as close to zero as possible—shocking, we know). But keeping more money in your actual paycheck means you can put your hard-earned dollars toward your goals now. There’s no sense in letting the government hang on to your money until tax time.

With all these tax changes, it’s a good idea to call in the folks who live and breathe this stuff. If you want your taxes to be squared away the right way, check in with your tax pro. They’re the experts who can walk you through this new Child Tax Credit change and how it impacts your money. And they’ll help you make the right call on if you should take the advance payments or leave them alone, and how to plan out your taxes in the best way. You know, so you don’t end up with a huge scary bill or a crazy-high refund. When it comes to your tax questions, leave it to the pros.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.

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Use this free quiz to help you decide which tax filing method is right for you.
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