Child Tax Credit 2021: How to Qualify & How Much It Is

What to know about the Child Tax Credit, the Child and Dependent Care Credit and the Earned Income Tax Credit.

Tina Orem, Ramona PadenApr 12, 2021
Do You Qualify for the Child or Child Care Tax Credit?
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The Child Tax Credit is a refundable tax credit of up to $3,600 per qualifying child under 18. The credit begins to phase out when adjusted gross income reaches $75,000 for single filers, $150,000 for joint filers and $112,500 for head of household filers.

The Child Tax Credit is one of several kid-focused federal tax credits that are among the most effective ways to reduce your tax bill.

The Child Tax Credit

How much you get per child

  • In 2021, the Child Tax Credit offers up to $3,000 per qualifying dependent child 17 or younger on December 31, 2021. The credit increases to $3,600 if the child is under 6 on December 31, 2021.

  • 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.

How to qualify for the Child Tax Credit

You can take full advantage of the credit only if your modified adjusted gross income is under:

  • For the 2020 tax year: $400,000 for married filing jointly, and $200,000 for everybody else.

  • For the 2021 tax year: $75,000 for single filers, $150,000 for married filing jointly and $112,500 for head of household filers.

  • For the 2020 tax year, there are special rules due to coronavirus: You can use either your 2019 income or your 2020 income to calculate your tax credit, and you can use whichever number gets you the bigger tax credit. (This is also the case for the Earned Income Tax Credit.) Be sure to ask your tax preparer to run the numbers both ways.

Some of the other child-related eligibility requirements for the Child Tax Credit include:

  • You must have provided at least half of the child’s support during the last year, and the child must have lived with you for at least half the year (there are some exceptions to this rule; the IRS has the details here).

  • The child cannot file a joint tax return (or file it only to claim a refund).

  • To take the Child Tax Credit for the 2020 tax year, the child has to be 16 or younger on December 31, 2020. To take the Child Tax Credit for the 2021 tax year, the child has to be 17 or younger on December 31, 2021.

Most tax software will lead you through the process and calculate the credits for you.

How to get paid now for the Child Tax Credit

The American Rescue Plan Act of 2021 allows parents to get monthly checks in 2021 as an advance payment on their 2021 Child Tax Credit. Here are the basics of how that works:

  • 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 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.

  • The IRS will use your most recent tax return to determine whether you qualify for the Child Tax Credit and to see how old the kids will be so it knows how much to send you each month.

  • If you'd rather claim 100% of your Child Tax Credit at the end of the year, you can opt out of the periodic payment program. The U.S. Treasury is setting up an online portal to do that.

  • The online portal will also be the place to tell the IRS about things that would affect the amount of your payment, such as a change in the number of kids, marital status or income.

  • If it turns out that you were overpaid or underpaid during the year, you may need to true that up on your tax return at the end of the year.

The Child and Dependent Care Tax Credit

What it is and how much you can get

  • For the 2020 tax year, the Child and Dependent Care Credit can get you 20% to 35% of up to $3,000 of child care and similar costs for a child under 13, an incapacitated spouse or parent, or another dependent so that you can work (and up to $6,000 of expenses for two or more dependents).

  • For the 2021 tax year, the Child and Dependent Care Credit can get you up to 50% of up to $8,000 of child care and similar costs for a child under 13, a spouse or parent who cannot care for themselves, or another dependent so that you can work (and up to $16,000 of expenses for two or more dependents).

  • The percentage of allowable expenses decreases for higher-income earners — and therefore the value of the credit also decreases.

  • For the 2020 tax year, this credit is not refundable, which means it can reduce your tax bill to zero but you won't get a refund on anything left over from the credit. For the 2021 tax year, however, the credit is refundable.

  • Some states also offer their own versions of this credit for child care and dependent care. They are often simply a percentage of the federal credit, but your state could expand eligibility, adjust the income thresholds or provide other incentives.

How to qualify for the Child and Dependent Care Tax Credit

  • A dependent child must be 12 or younger at the time the child care is provided.

  • Spouses and other dependents don’t have an age requirement, but IRS rules say they must have been physically or mentally incapable of self-care and must have lived with you for more than half the year.

  • If you’re married, you must file as married filing jointly.

  • You must have earned income — money you earned from a job. Investment or dividend income doesn’t count.

  • You must provide the care provider’s name, address and Taxpayer Identification Number — either a Social Security number or an Employer Identification Number.

You can’t claim the credit for payments to care providers who are:

  • Your spouse

  • A parent of the dependent child

  • A dependent listed on your tax return

  • Your child who is age 18 or younger, even if they’re not listed as a dependent on your return

Keep in mind that qualifying expenses can go beyond physical care and extend to household expenses such as paying someone to help with cooking and cleaning.

The Earned Income Tax Credit

What it is and how much you can get

The Earned Income Tax Credit is specifically designed to benefit working people with low incomes. People with kids can get a higher credit.

The tables show both the maximum credits and the maximum income allowed before losing the benefit.

2020 Earned Income Tax Credit

(for taxes due in May 2021)

Number of children

Maximum earned income tax credit

Max earnings, single or head of household filers

Max earnings, joint filers

0

$538

$15,820

$21,710

1

$3,584

$41,756

$47,646

2

$5,920

$47,440

$53,330

3 or more

$6,660

$50,954

$56,844

2021 Earned Income Tax Credit

(for taxes due in April 2022)

Number of children

Maximum earned income tax credit

Max earnings, single or head of household filers

Max earnings, joint filers

0

$1,502

$21,430

$27,830

1

$3,618

$42,158

$48,108

2

$5,980

$47,915

$53,865

3 or more

$6,728

$51,464

$57,414

How to qualify for the Earned Income Tax Credit

  • You have to file a tax return to get this credit, even if you don’t owe tax and are not legally obligated to file a return.

  • This tax credit is refundable. So, if you’re due to receive a credit of $5,000 but you owe only $2,000 in taxes, you might get a check for $3,000.

  • For the 2020 tax year, there are special rules due to coronavirus: You can use either your 2019 income or your 2020 income to calculate your tax credit, and you can use whichever number gets you the bigger tax credit. Be sure to ask your tax preparer to run the numbers both ways.

  • A number of states offer some version of an earned income tax credit for working families, so you might be able to get that credit, too.

  • Most tax software will lead you through the process and calculate the credits for you.