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2021 Child Tax Credit Advance Payments

3-Minute read

What?

The American Rescue Plan Act modified the Child Tax Credit for eligible taxpayers in a few key ways:

  1. The credit amount increased from $2,000 to $3,600

  2. The age limit went from 16 to 17 years old

  3. The credits will be automatically paid out in monthly advances.

Why?

The risk of child poverty as a result of the pandemic has surged and in effort to reduce the effect on those at risk, the changes will put money in the hands of those who need it most.

Will I receive the payments?

Eligibility is based on your income and qualifying children who will be younger than 18 on January 1, 2022.

The IRS will use your 2020 or 2019 tax return for eligibility and payment amount. If you haven’t filed either year, you will need to either file them ASAP or use the Child Tax Credit Non-filer Sign-up Tool.

To see if you qualify, use the IRS Advance Child Tax Credit Eligibility Assistant.

If you are eligible for advance payments you will automatically receive payments on the following schedule:

  • July 15, 2021

  • August 13, 2021

  • September 15, 2021

  • October 15, 2021

  • November 15, 2021

  • December 15, 2021

How much will I receive?

Most taxpayers will receive half of their eligible credit in monthly installments. That means $300 per month per child under 6 years old and $250 per month per child aged 7-17. However, higher earners will receive reduced payment amounts.

The annual credit can be reduced to $2,000 per child if your modified AGI in 2021 exceeds:

  • $150,000 if you’re married filing jointly

  • $112,500 if you’re filing as a head of household

  • $75,000 if you’re single or married filing separately

The annual credit can be reduced to below $2,000 per child if your modified AGI in 2021 exceeds:

  • $400,000 if you’re married filing jointly

  • $200,000 for all other filing statuses

This is important: those who qualify for the Child Tax Credit based on 2020 information but do not actually qualify in 2021 would have to pay back the credit in full at tax time. That could happen if you receive more income in 2021 than you did in 2020 or if your child turns 18 by January 1, 2022.

Should I opt out of advance payments?

If you decide to opt out you will still be able to claim your full entitled Child Tax Credit upon filing a 2021 tax return anyway, so you wouldn’t be forgoing the credit, just opting out of the prepayments.

Any payments you receive in advance cannot be claimed on your 2021 tax return.

Receiving these advance payments will likely complicate your 2021 return and result in a lower tax refund than usual. It could even cause you to owe tax if you received advances on a Child Tax Credit that you were ultimately not entitled to.

Bottom line is that everyone’s situation is different, but to avoid unwanted surprises at tax time, it may be wise to opt out of the advance payments unless you cannot make ends meet otherwise.

These advanced payments were intended as a lifeline for those impoverished.

How do I opt out of the Advance Child Tax Credit?

Because you are automatically enrolled, you need to actively unenroll on the IRS website, through your online IRS account. You will need to register if you don’t have one yet.

For married couples, each spouse will need to complete the opt-out process on their respective accounts.

The first opt-out deadline is 6/28/21; there are additional opt-out deadlines each month before the next payment: 8/2/21, 8/30/21, 10/4/21, 11/1/21, and 11/29/21

Once you opt out, you cannot opt back in until the IRS allows re-enrollment, possibly in September 2021.

Links:

Child Tax Credit Update Portal
More info from the IRS

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