In March 2021, the American Rescue Plan passed and ushered in a historic one-year expansion of the Child Tax Credit (CTC) that has the power to significantly reduce child poverty, build racial equity, and create a public investment for the good of all children. This temporary expansion is not perfect and, critically, is not permanent—we are fighting hard to ensure that we make the most of this momentum and pass a permanent, universal child allowance, which would be life-changing for families across the country.
In the meantime, below we have outlined what you need to know about the CTC expansion and what it means for your family.
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Child Tax Credit: Frequently Asked Questions
Q: What is the Child Tax Credit?
A: The Child Tax Credit (CTC) is a decades-old support for families to help them afford the everyday expenses of raising children. It has historically been claimed at the time that a parent or caregiver files their taxes, and it has also been seriously flawed: millions of families did not previously qualify for the CTC because, ironically, they earned too little. The American Rescue Plan, signed into law on March 11, 2021, expands and improves upon the CTC for one year, making it available to the 23 million children—disproportionately Black and Latinx children—who were previously left out.
The American Rescue Plan also changed the way that the benefit will be available to families this year: instead of having to wait until they file their 2021 taxes, families will be able to get a cash benefit “advance” on the credit through periodic or monthly payments beginning as early as July 1, 2021.
The poverty-fighting power of this expanded Child Tax Credit must be made permanent, and the Children’s Defense Fund is fighting hard to make that happen.
Q: How does the expanded CTC advance racial equity and reduce child poverty?
A: The American Rescue Plan is projected to cut child poverty in half in 2021, and the one-year expansion of the CTC accounts for the vast majority of the poverty-fighting effect of the bill. Its impact on racial disparities in poverty is even more dramatic: if implemented well, this change may cut poverty by 52 percent for Black children, by 45 percent for Hispanic children, by 37 percent for Asian American and Pacific Islander (AAPI) children, and by 62 percent for Indigenous children.
Q: What is the difference between the Child Tax Credit and a child allowance?
A: The inclusion of this robust expansion of the CTC in the American Rescue Plan is a critical step forward in making a guaranteed monthly child allowance permanent. A child allowance is a regular, direct, per-child payment that helps families afford the costs of raising children. A child allowance is available to all children, is easy to access, and is unconditional. In turn, it helps boost children’s health, increase family income, and reduce racial disparities. In order to truly create a universal child allowance, the expansion of the CTC would need to be improved upon so that it reaches all children and is permanent. The Children’s Defense Fund and our partners in the Automatic Benefit for Children (ABC) Coalition are fighting to make a permanent child allowance a reality.
Q: Who is eligible for the Child Tax Credit?
A: Families in the U.S. and territories qualify for the newly expanded CTC. Joint filers making up to $150,000, single head of households making up to $112,500, and other single filers making up to $75,000 qualify for the full advanced periodic payment of the CTC. In a very positive change from the current law, the expansion of the Child Tax Credit in the American Rescue Plan means that you do not have to be employed to receive the benefit; even families who have no income at all will be eligible.
Q: How much of a cash benefit will I receive?
A: The simple answer is that it depends on your income, how many children you have, and their ages.
If you are unmarried and earn less than $112,500 per year or are married and your household income is less than $150,000 per year, you will receive $3,600 per child under six years old and $3,000 per child age six to 17. Estimates project that families will receive about $300 per child for children under six, and $250 per child between ages six and 17, for each periodic payment.
So, for example, if you have one child, aged seven, you will receive $3,000 over the course of a year, or $250 per month.
The cash benefit begins to reduce by $50 for every additional $1,000 of income earned. Higher-income families who previously qualified are still eligible for the $2,000 per child benefit for individuals making up to $200,000 and joint filers making up to $400,000. Meaning, they will not receive less than what they previously did under current law.
Q: How do I apply for the Child Tax Credit?
A: The American Rescue Plan directs the Secretary of the Treasury to use information from your family’s 2020 tax return to calculate how much of an advanced payment you will be eligible for. If your family didn’t file taxes in 2020, the IRS will use information from your 2019 return. If you filed your taxes in 2019 or 2020, you will not need to take any additional steps to apply for the benefit. However, according to recent statements made by the IRS Commissioner, families that haven’t filed their taxes recently will have to file a return to receive the benefit if they are not connected to the tax code already.
Q: If I am eligible for the Child Tax Credit, when will I see payments?
A:Your family could receive half of the cash benefit as an “advance” on your 2021 taxes through periodic or monthly payments. Families could receive their first payment as early as July 1, 2021; however, the IRS needs to develop and implement several processes to make the distribution of periodic payments as smooth as possible, so this timing is subject to change.
This advanced payment is intended to reach families monthly, or in “periodic” payments, as opposed to one lump sum when you file your 2021 taxes. Periodic payments are shown to help families better meet their daily and monthly living expenses. However, The IRS is also directed to create an option for families to “opt-out” of the monthly or periodic payment, if they would prefer to have the cash benefit in one lump sum during tax time.
Q: How will the IRS get me my benefit?
A: If the IRS already has your bank account information on file, you may receive the CTC advanced payments through direct deposit, as you would receive a tax refund or have received recent economic stimulus payments. The process is not yet clear for how those without bank accounts and those whose bank account information is not on file with the IRS will receive their payments. We will update that information as it becomes available.
Q: Will I continue to get this cash benefit every year?
A: Not currently. This is a temporary expansion of the CTC that applies only for tax year 2021. The Children’s Defense Fund is fighting hard to ensure that Congress takes additional action and passes legislation that includes a permanent expansion and other critical improvements to the CTC.
Looking for more information?
Check out our “Understanding the Expanded Child Tax Credit” blog post for the answers to additional questions you may have and our “File Your 2020 Taxes” resource for more information about filing your taxes to get the money you and your family are owed.
What will this advanced monthly or periodic payment mean for your family?
We want to hear from you! Please fill out this brief survey to tell us how the expansion of the Child Tax Credit will make a difference for your family this year:
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