2021 Child Tax Credit: Eligibility and What You Need to Know

by | Private Client Services

Beginning on July 15, millions of eligible families will start seeing monthly Child Tax credits in their bank accounts as part of the 2021 American Rescue Plan, a $1.9 trillion dollar relief package signed into law in March.

While the plan hasn’t had a lack of coverage in the media, there are still aspects that remain unclear to a huge portion of American families, including those here in Virginia that are eligible to begin receiving the credit.

Key Points to Know

  • The law increases the Child Tax Credit from $2000 to $3000 for each child between 6 and 17-years-old, and up to $3600 for each child under the age of 6
  • The plan will distribute approximately half of the due credit as direct payments to families, split evenly among the remaining 6 months in 2021
  • The changes for the Child Tax Credit apply to the 2021 tax year only
  • Receiving the upfront payments means that in 2022, you will only be able to claim half of the Child Tax Credit, as the other half was distributed via the direct payments
  • You can opt-out of receiving the direct payments in order to claim the full Child Tax Credit on your 2022 tax return


Who is Eligible?

Families eligible for the Child Tax Credit are those that have children who will not turn 18 before January 1, 2022, and that do not provide more than 50% of his or her own support. In addition, children must live with the taxpayer claiming the credit for more than half of the 2021 tax year.

Families earning less than $150,000 per year jointly will receive the full credit, as well as single filers earning less than $75,000 per year. Once that income threshold has been reached, the amount of the credit decreases according to annual income – $50 per $1000 of gross income over the threshold.

If I am a Grandparent guardian, can I claim the Child Tax Credit?

If you are the primary guardian of a child that meets the Child Tax Credit criteria, you can absolutely file to receive the credit. The credit extends to children that are a son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (grandchild, grandniece, or grandnephew.) This also means that stepparents can claim eligible stepchildren, as long as they meet the requirement of living with the taxpayer for over half the 2021 tax year.

I am going through a divorce that will be final in 2021, but custody is not determined yet. What does that mean for claiming the Child Tax Credit?

While the claiming process for married couples is straightforward, for divorced couples or couples going through a divorce this year, navigation gets a bit more difficult. Only one parent may claim the Child Tax Credit, even for couples where divorce is finalized.
If you are going through a divorce that includes a child custody agreement, consult with your divorce attorney to determine the best way forward for your situation. Choosing the right path for claiming your Child Tax Credit may require meditation or an agreement with your former spouse. Important tax records should be kept just in case they are needed.

An experienced legal professional can help ensure the best possible outcome.