Child Tax Credit Advance Payments
The IRS has started sending out letters to families who may qualify for advanced payments of the child tax credit which was expanded as part of the American Rescue Plan Act. Some key points to note:
- The child tax credit for each qualifying child under the age of 6 has increased from $2,000 to $3,600 for 2021 subject to income limitations noted below. Parents will receive up to $300/month for each qualifying child under the age of 6 as of December 31, 2021.
- The child tax credit for each qualifying child between the ages of 6 and 17 has increased from $2,000 to $3,000 for 2021 subject to income limitations noted below. Parents will receive up to $250/month for each qualifying child between the ages of 6 and 17 as of December 31, 2021.
- No amounts will be received for children over the age of 17.
- The advance payments will account for half of the family’s estimated 2021 child tax credit.
- Eligibility for payments is based on your most recently filed tax return. Income levels that qualify for the child tax credit are listed below. The extra $1,000 and $1,600 temporary increased credits for 2021 are phased out by 5 cents for each dollar that the adjusted gross income exceeds these amounts:
- Single - $75,000
- Head of household - $112,500
- Married filing joint - $150,000
- Taxpayers over the income limits above may still be eligible for the historical $2,000 credit per child depending on income. The $2,000 credits start to phaseout at $400,000 of adjusted gross income for married filing joint returns and $200,000 of adjusted gross income for all other filing statuses.
- This is an advance of the child tax credit, which is normally reported on your tax return. This is NOT additional stimulus checks or any other form of “free” money. The credits will be reconciled on your 2021 tax return based on your 2021 income. These advanced payments may create a tax liability for taxpayers when filing their 2021 returns if the remaining child tax credits and other withholding are not adequate to offset their tax due. Taxpayers may wish to unenroll from the program if they are concerned about paying the credits back with their 2021 tax return.
The IRS has created a Child Tax Credit Update Portal for individuals to unenroll from advanced tax payments, update eligibility information including changes in income, filing status or number of dependents. The full tool is not available yet, but as of today you can unenroll from the advanced tax credit payments here. For married filing jointly tax returns, both the taxpayer and spouse would need to unenroll under their own profile/username if they wish to claim the credit on their tax return instead of receiving the payments in advance.
There is no right or wrong decision in this matter. If you have specific questions or concerns, feel free to reach out to MHCS. Regardless of which option you select, please keep track of the amount you receive, as we will need this when we file your 2021 tax return. Similar to the stimulus checks, we will reconcile the amount you received with the total amount you were eligible for. However, unlike the stimulus checks, if you receive more than you are found to be eligible for, you may have to pay the excess amount received back.