Eligible parents will soon begin receiving payments from the federal government. The IRS announced that the 2021 advance child tax credit (CTC) payments, which were created in the American Rescue Plan Act (ARPA), will begin being made on July 15, 2021.
How have child tax credits changed?
The ARPA temporarily expanded and made CTCs refundable for 2021. The law increased the maximum CTC – for 2021 only – to $3,600 for each qualifying child under age 6 and to $3,000 per child for children ages 6 to 17, provided their parents’ income is below a certain threshold.
Advance payments will be up to $300 monthly for each child under 6, and up to $250 monthly for each child 6 and older. The increased credit amount will be reduced or phased out, for households with modified adjusted gross income above the following thresholds:
- $150,000 for married taxpayers filing jointly and qualifying widows and widowers;
- $112,500 for heads of household; and
- $75,000 for other taxpayers.
Under prior law, the maximum annual CTC for 2018 through 2025 was $2,000 per qualifying child but the income thresholds were higher and some of the qualification rules were different.
Important: If your income is too high to receive the increased advance CTC payments, you may still qualify to claim the $2,000 CTC on your tax return for 2021.
What is a qualifying child?
For 2021, a “qualifying child” with respect to a taxpayer is defined as one who is under age 18 and who the taxpayer can claim as a dependent. That means a child related to the taxpayer who, generally, lived with the taxpayer for at least six months during the year. The child also must be a U.S. citizen or national or a U.S. resident.
Who will benefit from these payments and do they have to do anything to receive them?
According to the IRS, about 39 million households covering 88% of children in the U.S. “are slated to begin receiving monthly payments without any further action required.”
Will I need to repay the credit if I receive too much in advance?
Parents will be required to reconcile the advance CTC payments received in 2021 compared to the amount for which they are eligible on the 2021 tax return. If circumstances changed and the advance payments exceed the eligible credit, the excess must be repaid, resulting in a balance due with your 2021 return or a reduced refund.
How can I avoid this repayment obligation?
To avoid the possibility of having to repay the credit, it may be advisable to opt out of the advance payments. Click here to visit the IRS website and opt out. Your DunlapSLK team member can assist in advising you if opting out is in your best interest. Be forewarned, the opt out application is tedious. Not only must each spouse opt out of their share of the advance payment, but there are also ID verification steps. It is important to note this election does not change your eligibility for the credit, it just delays the payment of the credit until you file your return.
This website will also allow you to update your direct deposit information for future payments. Another online portal is coming soon to allow parents to report a change in income or a change in the number of dependents.
Please note your opt out election and change to direct deposit are to take effect for the August payment. The first payment due 7/15 cannot be changed at this time.
Please reach out to your DunlapSLK team member if you have questions about the CTC.