Starting July 15, 2021, the Internal Revenue Service made the first of six-monthly payments for 2021 to approximately 35 million American families. The payment amounts vary depending on a family’s income, the filing status of parents or guardians, as well as the number of eligible children. For example, a family with three qualifying children could receive as much as $900/month for the remainder of 2021.
What Do You Need to Qualify?
The IRS will use your 2020 tax return to determine eligibility, or in some cases your 2019 tax return if you have yet to file your 2020 taxes. If you filed a tax return for 2020 or 2019 you should automatically receive the advance child tax credit payments. For those who were not required to file (and did not file) a tax return for 2020 can file a simplified tax return using the IRS’s Non-Filer Tool. This simplified tax return allows eligible taxpayers to register for the ACTC payments, the third Economic Impact Payment, and claim the 2020 Recovery Rebate Credit.
How Much Will My Payments Be?
For 2021 only, the maximum child tax credit has been increased from $2,000 per child under age 16 to $3,600 per child aged five and under and $3,000 per child ages six through 17 (as of December 31, 2021). Additionally, for 2021, the IRS is sending 1/2 of each family’s total estimated child tax credit in monthly installments that begin on July 15, 2021, and recur each month until December 15, 2021.
2021 Child Tax Credit vs. Permanent Child Tax Credit
There are income and age limits to the amount of the 2021 child tax credit that a family is eligible to receive. The 2021 child tax credit portion of the larger child tax credit scheme has different income caps than the permanent portion of the child tax credit. For a single filer, the amount received for each eligible child begins to be reduced at $75,000 of AGI, and $150,000 for most married filers.
Consider the following example: A couple who filed jointly and has $175,000 of adjusted gross income and two children ages six and 15 will have their eligible 2021 child tax credit amount reduced by $1,250. This couple would, however, still be eligible for the permanent child tax credit of $2,000 per child because the AGI cap for married filers for the permanent child tax credit is $400,000 and $200,000 for single filers. So, in this example, the married couple would receive $4,750 in total child tax credits and would receive monthly payments of approximately $395 for the remainder of 2021.
Tax Consequences for 2021
Since the ACTC payments are a dollar-to-dollar credit, receiving half of them before filing your 2021 taxes can have a significant impact on your tax liability when you file for 2021. Your refund could be reduced, or you could even owe more because you have already received 1/2 of your available child tax credits. You should consult with your tax advisor as soon as possible if you are concerned about avoiding a reduced refund amount or an increased tax bill next tax season. If you wish to opt-out of the monthly pre-payments or change your information, visit the Child-Tax-Credit Update Portal. If you decide to opt out, it is a good idea to review the IRS’s FAQ’s regarding the Child Tax Credit.
NOTICE: This article does not constitute legal advice and no attorney-client relationship has been formed with any individual or entity by its posting. If you have questions about the child tax credit or the advance payments, consult with a tax professional who can tailor their advice to your specific circumstances.
Author: Justin D. Barbour (07/15/2021)