Child Tax Credit Update
We want to make sure that you are aware of a new change to the Child Tax Credit that may impact you.
Included in the American Rescue Plan Act of 2021 (ARPA) were some major changes to the Child Tax Credit for tax year 2021. These changes include:
- An increase of the credit from $2000 per qualifying child to $3000 per qualifying child aged 6 to 17 and $3600 per qualifying child aged 5 and under (as of December 31, 2021)
- An adjustment that makes the credit fully refundable for all eligible taxpayers
- A new feature—the IRS will make advance payments of 50% of the tax credit in monthly increments
What do you need to do to receive the advance payments that start next month? Many families eligible for the tax credit will not need to take any action because the IRS already has the information needed. This includes those who claimed the Child Tax Credit on their 2019 or 2020 tax return and those who used the IRS Non-Filers tool in 2020 to receive their Economic Impact Payment.
The IRS intends to offer three tools that will allow eligible recipients of the Child Tax Credit to communicate key information to the tax bureau:
- The Non-filer Sign-up Portal is currently available. Eligible recipients who are not required to file a tax return can use this portal to submit basic information to the IRS.
- The Interactive Child Tax Credit Assistant will soon be available. Families will be able to use it to determine whether they qualify for the tax credit.
- The Child Tax Credit Update Portal will soon be available. Via this portal, users will be able to view their eligibility status and opt out of the advance payment program, if they so choose. Additionally, this portal will allow users to check on the status of their payments and make updates to their information with the IRS (e.g., let the IRS know about children born in 2021).
What will the monthly payments be and when will they be delivered?
Families will receive monthly payments of $250 per qualifying child aged 6 to 17 and $300 per qualifying child aged 5 and under. From July through December 2021, the payments will be delivered on the 15th of each month (unless the 15th falls on a weekend or a holiday).
If taxpayers receive advance payments in excess of their allowable credit for the 2021 tax year, they will generally have to repay the excess in the form of an increase in the federal income tax liability shown on their 2021 Form 1041. However, under a safe-harbor rule, taxpayers with Modified Adjusted Gross Income (MAGI) below certain thresholds may be allowed to keep some or all of the excess payments.
We suggest that you opt out of the advance payments if you expect your 2021 MAGI to exceed $75,000 for single filers, $112,500 for heads of household filers, and $150,000 for married joint filers.
For more details, visit the “Advance Child Tax Credit Payments in 2021” page at irs.gov , check out this helpful video from the IRS, “Here’s Who Will Get Advance Payments of the Child Tax Credit,” or consult the 2021 Child Tax Credit and Advance Child Tax Credit Payments FAQs.
As always, please feel free to reach out to your tax advisor with any question you may have about this tax credit.
