Advance Child Tax Credit Payments Start July 15

What You Need to Know Now: Advance Child Tax Credit Payments Start July 15

The American Rescue Plan Act (ARPA), enacted in March 2021, brought many changes to the child tax credit. The new law increases the amount of the credit for certain taxpayers, is fully refundable, and may be partially received in advance monthly payments beginning July 15. Additionally, the age of qualifying children was raised to 17 from 16, allowing for some families to receive the benefit of the credit longer.

Eligibility
To qualify for the child tax credit, you (and your spouse if married filing jointly) 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 of the year, or file a joint return with a spouse who has a main home in the U.S. for more than half of the year
• A qualifying child under the age of 18 at the end of 2021 who has a valid social security number
• Income below certain thresholds discussed below

The amount of the child tax credit you are eligible to receive is determined based on the age of your qualifying child(ren) and your modified adjusted gross income.

For tax year 2021, the child tax credit is increased from $2,000 per qualifying child to:

• $3,600 for children ages 5 and under at the end of 2021; and
• $3,000 for children ages 6 through 17 at the end of 2021.

You can take the full credit if your income is less than:

• $75,000 for single filers
• $150,000 for married filing jointly filers
• $112,500 for head of household filers

The credit begins to phase out above these thresholds. Higher-income families (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 ($2,000 per qualifying child) and may also choose to receive monthly payments.

You can check your eligibility for the advance child tax credit using the IRS eligibility assistant.

Advance Monthly Payments
ARPA includes the option for taxpayers to receive half of their 2021 child tax credit in the form of advance monthly payments. Taxpayers will then claim the other half of their child tax credit on their 2021 income tax return.

The payments will begin on July 15, 2021 and be made on a monthly basis through December 2021.

While these tax changes are temporary and only apply to the 2021 tax year, they present taxpayers with a new opportunity for cashflow and financial planning. The credit is normally part of your income tax return and would reduce your tax liability.

Choosing to receive a portion of the credit in advance will affect your refund or amount due when you file your 2021 return.

Next Steps
The IRS began sending letters in June with the amount of your estimated child tax credit monthly payments. Taxpayers generally do not need to do anything to receive the advance payments as the IRS will use the information it has on file to start issuing the payments. Taxpayers can use the IRS Child Tax Credit Update Portal to update their file for any new information that may affect the child tax credit, such as filing status or number of children.

The IRS has a separate portal to allow non-filers to sign up for the child tax credit monthly payments.

Taxpayers that prefer to claim the full credit on their 2021 income tax return or know they will not be eligible for the credit for the 2021 tax year have the option to unenroll from the advance payments. Qualified taxpayers will be automatically enrolled in the advance monthly payments and must use the portal to elect out of the payments. The portal will allow taxpayers to unenroll before the first advance child tax credit payment is made on July 15, 2021.

Please contact your Herbein + Company, Inc. tax consultant if you have questions regarding this article or email us at info@herbein.com.

Article prepared by Annika McKinney.