How Are the Childcare Tax Credits Different?

Updated for tax year 2021

The Child Tax Credit (CTC) underwent some hefty changes in 2021:

  • Max credit amount: The credit’s maximum amount increased from the original $2,000 per child to up to $3,000 per qualifying child age 6-17 and up to $3,600 for children ages 5 and under in 2021.
  • Child’s age: Children ages 17 and under can qualify for the credit in tax year 2021 while previously the qualifying age was capped at 16.
  • Refundability: The CTC is fully refundable in 2021, meaning you can claim the full amount as a tax refund even if you don’t owe any income tax.
  • Advance monthly payments: Parents of qualifying children could receive half of their Child Tax Credit in six advance monthly installments in 2021, then claim the remainder of their credit when filing their 2021 tax return.
  • No minimum income limit: You do not need to have earned income in 2021 to qualify for this tax credit.
  • Income phaseout threshold: The credit amount you qualify for starts decreasing once your adjusted gross income hits a certain threshold: $75,000 for single filers, $150,000 for joint filers, and $112,500 for head-of-household filers.

CTC vs. ACTC in 2021

Before 2021, you couldn’t take the full CTC if you owed less income tax than the credit amount, but you could qualify to claim the Additional Child Tax Credit (ACTC). The ACTC is a $1,400 refundable credit, so in previous years, taxpayers could take the tax break even if they didn’t have any tax liability — or if the amount they owed was low.

Things look a little different this year after the IRS expanded the regular Child Tax Credit benefits, making the CTC fully refundable and getting rid of the minimum income requirements. However, the $1,400 ACTC limit still typically continues to apply to Americans living abroad. If your main home was located outside the U.S. in 2021, you can still claim the refundable Additional Child Tax Credit.

The CTC continues to determine your eligibility for the ACTC. If you don’t qualify for the CTC, you can’t take the ACTC.

Sophie Tremblay

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