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There are big changes for the 2021 child tax credit – but, at least for now, they're only temporary. For 2020 tax returns, the credit was worth $2,000 per child 16 years old or younger. It also began to disappear as income rose above $400,000 on joint returns and above $200,000 on single and head-of-household returns. For some lower-income taxpayers, the credit was partially "refundable" (up to $1,400 per qualifying child) if they had earned income of at least $2,500. (That means the IRS issued you a refund check for the refundable amount if the credit was worth more than your income tax liability.)

The American Rescue Plan, which was enacted in March 2021, provides a dramatic, one-year expansion of the child tax credit for the 2021 tax year. One of the biggest changes is to the amount of the credit. For 2021, it jumps from $2,000 to $3,000 for most children – but to $3,600 for children 5 years old and younger. The extra amount ($1,000 or $1,600) is reduced – potentially to zero – for families with higher incomes, though. For people filing their tax return as a single person, the extra amount starts to phase-out if their adjusted gross income is above $75,000. The phase-out begins at $112,500 for head-of-household filers and $150,000 for married couples filing a joint return. The credit amount is further reduced under the pre-existing $200,000/$400,000 phase-out rules.

Another important change is that the 2021 credit is fully refundable. The $2,500-of-earned-income required is dropped for 2021, too. Children who are 17 years old also qualify for the 2021 credit.

Who's Not Eligible for Child Tax Credit Payments (It May Explain Why You're Not Getting Them)
Last but not least, half of the 2021 credit amount is being paid in advance through monthly payments that started on July 15 and will end on December 15. You'll claim the other half of the credit on your 2021 tax return. You'll also have to reconcile the monthly payments that you receive from the IRS in 2021 with the child tax credit that you're actually entitled to claim when you file your 2021 return. If the credit amount exceeds the total monthly payments, you can claim the excess credit on your return. But if the credit amount is less than the payments, you may or may not have to pay the excess back. You can also opt-out of the monthly child tax credit payments if you'd rather just claim the full credit on your tax return (e.g., to get a larger refund) or you don't qualify for the 2021 credit (e.g., if an ex-spouse will claim this year's credit for your child). (Use our 2021 Child Tax Credit Calculator to see how much your credit will be for 2021 – including how much your monthly payments will be.)

Although these enhancements only apply for the 2021 tax year, President Biden wants to extend most of them through 2025 and make the credit fully refundable on a permanent basis. However, whether that effort is ultimately successful remains to be seen.