Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:

·   Amount has increased for certain taxpayers

·   Is fully refundable (meaning you can receive it even if you don’t owe the IRS)

·   May be partially received in monthly payments

The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.

The IRS will pay half the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

Qualifications and how much to expect

The child tax credit and advance payments are based on several factors, including the age of your children and your income.

·   The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.

·   The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:

·   Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool

·   A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year

·   A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number

·   Income less than certain limits

You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.

Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.

Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.

Although the 2021 advance child tax credit payments are being estimated based on your 2020 tax return, the actual child tax credit you are allowed will be based on your 2021 tax return.  This means if your 2021 tax situation is significantly different from 2020, you may receive advance child tax credit payments that will have to be paid back to the IRS!

What if you expect your 2021 tax situation to be different from 2020?

Your 2021 tax filing may end up different from 2020 for a variety of reasons…your income may be up or down, your marital status may have changed, you may not be entitled to claim some of your dependents, etc.  If you expect your 2021 tax situation to be significantly different from 2020, you may want to opt-out of the advance child tax credit payments.  The IRS has set up an online portal where you can notify them that you do not want to receive the payments from July – December 2021.  If that is the case, you will calculate and claim the full credit you are allowed with your 2021 tax filing and not run the risk of receiving payments you have to pay back next spring (when you file your taxes).

IRS’s child tax credit update portal

Using the IRS’s child tax credit and update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.

  • So far, people using the opt-out portal have found it cumbersome.  You have to set up either an IRS account or an account, which is a process that takes some time.
  • If you file married filing jointly with a spouse and want to opt-out, both you and your spouse have to go through the opt-out process.
  • You can choose to receive some of the advance payments and then opt-out of the remaining payments.     Once you opt-out of the payments, you will not receive any of the remaining advance payments.  However, the IRS has said they will be offering the ability to “opt in” again later in the fall.  There is a deadline to opt-out of the next month’s payment, as follows-