Claiming the Child Tax Credit for Tax Year 2021

Tax reform didn't eliminate this popular tax credit

Parents and young child sitting on a sofa with a laptop
Photo:

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The child tax credit was originally enacted to help working families offset the cost of raising children. It was improved by the Tax Cuts and Jobs Act (TCJA) in 2018, and these more favorable rules will apply to families at least through tax year 2025. The American Rescue Plan Act also made some significant improvements to the credit in 2021 in response to the ongoing health and economic crisis, but these provisions will remain in place for only one year.

The tax year is the same as the calendar year for the majority of American taxpayers, starting on January 1 and ending on December 31.

Key Takeaways

  • The American Rescue Plan increased the child tax credit to $3,600 for children five and under and $3,000 for children ages six through 17.
  • Your qualifying child can't pay for more than half their own support needs during the tax year and in most cases, they must have lived with you, in your home, for more than half the year.
  • The American Rescue Plan has adjusted the child tax credit rule to make it fully refundable for tax year 2021.

The Maximum Child Tax Credit

Signed into law by President Joe Biden on March 11, 2021, The American Rescue Plan increased the child tax credit to $3,600 for children under the age of six and $3,000 for children ages six through 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (head of household).

Qualifying Children

First, as the name suggests, you must have a qualifying child dependent to claim this tax credit. The child can't yet have reached age 18 by December 31, the last day of the tax year, and they must be related to you.

Note

The definition of “related” for purposes of this credit is broader than you might expect. It includes biological and adopted children, stepchildren, foster children living in your care, siblings, step-siblings, or the children of any of these individuals.

Your qualifying child can't pay for more than half their own support needs during the tax year, if they have any income of their own. In most cases, they must have lived with you, in your home, for more than half the year, but temporary absences such as living away at school for a period of time don't count. 

Your child must be a U.S. citizen, a U.S. national, or a U.S. permanent resident, and you must claim them as a dependent on your tax return. They must have a valid Social Security number (SSN), and you must provide it to the IRS when you file your tax return and claim the credit. 

The Refundable Portion of the Child Tax Credit

Because of the TCJA, up to $1,400 of the child tax credit can be refundable through 2025. The IRS will send you a refund for up to this amount if any part of your credit is left over after eliminating your tax debt. This refund is referred to as the "additional child tax credit." But the American Rescue Plan Act adjusts this rule as well. The credit is fully refundable for tax year 2021.

You must have earned income from a job or self-employment to qualify for the refundable portion. Nontaxable combat pay also qualifies, but investment income does not—that’s considered “unearned.” Unemployment benefits, public assistance, and workers' compensation benefits are also considered unearned income. 

Calculating Your Refund 

The refundable portion of the tax credit is normally equal to 15% of your earned income over $2,500. A taxpayer would therefore need earned income of approximately $12,000 a year to qualify for and receive the full $1,400 refund: $12,000 less $2,500 is $9,500, and 15% of $9,500 works out to $1,425. This taxpayer with earned income of $12,000 would forfeit that extra $25, because the refundable portion of the credit is capped at $1,400. But this rule has also been waived in 2021 by the American Rescue Plan Act.

Note

IRS Publication 972 includes a worksheet to help you figure out the refundable portion of your child tax credit.

Child Tax Credit Income Limits

The child tax credit is also subject to income limits for taxpayers who earn too much. The overall credit is reduced by $50 for every $1,000 over the “phaseout,” or limit, until it's eliminated entirely. 

For the first phaseout in 2021, the child tax credit begins to be reduced to $2,000 per child if your modified adjusted gross income (AGI) exceeds:

  • $150,000 if married and filing a joint return or if filing as a qualifying widow or widower
  • $112,500 if filing as head of household
  • $75,000 if you are a single filer or are married and filing a separate return

For the second phaseout in 2021, the child tax credit won’t begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:

  • $400,000 if married and filing a joint return
  • $200,000 for all other filing statuses

For example, an unmarried taxpayer earning $210,000 normally wouldn't receive a $2,000 credit but rather $1,500 in years other than 2021. That $10,000 over the threshold would shave 5% off the credit amount, or $500. 

MAGI vs. Gross Income

These income thresholds are based on your modified adjusted gross income (MAGI), not your entire earnings. Many taxpayers find that their MAGIs are the same as their adjusted gross incomes, which can be found on Line 11 of the 2021 Form 1040 tax return. 

You can calculate your MAGI by adding back certain exclusions from income you might have taken to arrive at your AGI, including income from Puerto Rico, American Samoa, and foreign-earned income. 

Credit for Other Dependents

Those who don't qualify for the child tax credit might be able to claim an additional $500 credit, the “Credit for Other Dependents,” for your non-child dependents in tax year 2021. All of the existing rules for claiming adult dependents on your tax return still apply, and they’re largely the same for qualifying child dependents. They cover those who don’t meet the age requirement for the child tax credit. The credit for other dependents isn’t refundable.

Frequently Asked Questions (FAQs)

How much do you get for claiming a child in 2021?

Because of the American Rescue Plan Act, signed into law on March 11, 2021, most families will receive the full amount of the child tax credit: $3,600 for each child under age six and $3,000 for each child ages six to 17.

What are the requirements to claim the child tax credit?

Your child must be a U.S. citizen, a U.S. national, or a U.S. permanent resident, and you must claim them as a dependent on your tax return. They must have a valid Social Security number (SSN), and you must provide it to the IRS when you file your tax return and claim the credit.

In addition, your qualifying child can't pay for more than half their own support needs during the tax year and in most cases, they must have lived with you for more than half the year.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. The White House. "The Child Tax Credit."

  2. Congress.gov. "H.R.1319 - American Rescue Plan Act of 2021."

  3. Internal Revenue Service. "Publication 972: Child Tax Credit and Credit for Other Dependents," Page 3.

  4. Internal Revenue Service. "Child Tax Credit and Credit for Other Dependents." Pages 4-5.

  5. Internal Revenue Service. "Child and Dependent Care Credit FAQs."

  6. U.S. Congress. “H.R. 1319—American Rescue Plan Act of 2021.” Sec. 9611, Pages 141-142.

  7. Internal Revenue Service. "Publication 972: Child Tax Credit and Credit for Other Dependents," Page 10. Dec. 10, 2021.

  8. The Brookings Institution. “What Is the Child Tax Credit? And How Much of It Is Refundable?

  9. Internal Revenue Service. "2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic C: Calculation of the 2021 Child Tax Credit."

  10. Internal Revenue Service. "Publication 972: Child Tax Credit and Credit for Other Dependents," Page 4.

  11. Internal Revenue Service. "What taxpayers need to know about claiming the credit for other dependents."

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