2021 Child Tax Credit and Advance Child Tax Credit Payments
Earlier this year, a new Federal tax bill was enacted which expanded the Child Tax Credit. This bill increased the credit per qualifying child to $3,600 for those younger than 6 years old and $3,000 for those from 6 to 17. Note that the age limit has increased to age 17 for qualifying children. Previously, the maximum credit was limited to $2,000 for those with qualifying children 16 and under.
The full expanded credit amounts above are only available for those under certain income thresholds and filing status:
• $75,000 or less for single taxpayers and those married filing separately
• $112,500 or less for heads of household
• $150,000 or less for married couples filing a joint return
Once income exceeds the amounts above, the expanded credit will begin to be reduced. This reduction or phase-out reduces the Child Tax Credit by $50 for each $1,000 by which your modified adjusted gross income (AGI) exceeds the income thresholds above.
For tax filers with income above these thresholds, the full $2,000 child tax credit is still available as it has been in past years as long as income does not exceed:
• $200,000 or less for single taxpayers and those married filing separately
• $200,000 or less for heads of household (yes, same as single filers)
• $400,000 or less for married couples filing a joint return
Once income exceeds the amounts above, the $2,000 credit will begin to be reduced. This reduction or phase-out reduces the Child Tax Credit by $50 for each $1,000 by which your modified adjusted gross income (AGI) exceeds the income thresholds above.
Advanced Child Tax Credit – Advance Payments to begin this month on the 15th
If not opting out, those eligible will begin to receive monthly payments starting July 15th for an advance of their 2021 child tax credit. These payments over the next six months will be half (or 50 percent) of what the IRS estimates will be your 2021 calculated child tax credit. The IRS estimated credit payments will be based on your 2020 tax return (or 2019 tax return, if 2020 not yet filed). A letter is expected to be received by all that are eligible for an advance tax credit payment. Within the letter will be the anticipated monthly amount each will be receiving.
The monthly payments will be made from July through December and are only based on qualifying children as mentioned above and not other dependents claimed on your tax return.
If you have filed a 2019 or 2020 tax return, you generally will not have to do anything to qualify for the advance payments. Payments will be made by direct deposit to the account the IRS has on file based on your most recent tax return processed or mailed by check. However, if you’d like to update or add banking information you may do so. Provided below are a couple of links for easy access to certain areas within the IRS site we feel would be helpful, including where to add or update your banking information.
As mentioned above, you may elect to opt out of receiving these advance payments. Examples of why this may be the case is that you are not expecting to claim the same number of qualifying dependents on your 2021 tax return as in the prior year, or you simply would rather receive the credit while completing the tax return instead of in advance.
One of the links below will help direct you to the area where you can opt out or “un-enroll”.
Please note that this advance payment is not taxable. However, the amount you receive in advance most likely will reduce the amount of credit that will be calculated when completing your 2021 tax return next year. In addition, if you receive more in advance payments than what is calculated (and allowable) when completing your 2021 tax returns, this will result in a reduction of any refund or cause additional amounts to be owed. Therefore, please note how much the credit is expected to be and allow for this when tax planning. For those we provide such planning services, we will take this into account within our calculations.
It is also expected that the IRS will be sending out a letter in January 2022 to those that have received the advance payments notifying them of the amount they received in 2021 as an advance. This letter will be helpful to us when we are preparing your tax returns and should be presented to us when providing other 2021 tax-related documents.
IRS links regarding Advance Child Credit:
• General Information 2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic A: General Information | Internal Revenue Service (irs.gov)
• By following the link below you’ll be able to manage and update certain information:
o Bank Account information
o Un-enroll from Advance Payments
o Mailing Address (available early August)
o Add/Subtract the number of qualifying children (available late summer)
o Change of Marital Status (available late summer)
o Report a change in income (available late summer)
o Un-enroll from Advance Payments (available late summer)
The links above are also available through the IRS site at www.irs.gov and provide guidance with questions and responses that will relate to most everyone affected by this change.