The American Rescue Plan Act (ARPA), signed into law in March 2021, made some changes to the Child Tax Credit. Specifically, qualified taxpayers with dependent children ages 0-17 will receive up to 50% of the eligible Child Tax Credit in advance of claiming the credit on their 2021 tax return in 2022. The disbursement will be paid monthly starting July 15, 2021 and ending December 15, 2021.
Similar to other stimulus payments issued in 2020 and 2021, the IRS will use certain information to automatically determine if a taxpayer qualifies to receive the advance payments. Specifically, taxpayers will qualify for the advance payments under the following guidelines:
If a taxpayer has income exceeding the amounts above, the credit will be subject to a phase-out provision. The phase-out will start with a $50 credit decrease for every $1,000 over the above income amounts per child.
The IRS will advance 50% of the credit in the form of monthly deposits of $300 (ages 0-6) or $250 (ages 6-17) per month per child for a total of up to $1,800 or $1,500 per eligible child in 2021. The remaining credit will be taken on the 2021 tax return.
Total credit allowed for 2021:
|Up to $3,600 per child ages 0-6 for the 2021 tax year.|
|Up to $3,000 per child ages 6-17 for the 2021 tax year.|
Similar to other stimulus payments issued in 2020 and 2021, if the IRS has a taxpayer’s banking information, the payment will be sent as a direct deposit. If the IRS does not have bank account information to issue a direct deposit, the advance Child Tax Credit payments will arrive by mail.
The credit is fully refundable; therefore, families can receive the full benefit even if they don't earn enough money to owe any tax in 2021.
Unlike stimulus checks, if you are overpaid in child tax credits due to an increase in income in 2021, the IRS will require repayment when filing the 2021 tax return.
Eligible taxpayers who don’t want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to un-enroll from receiving the payments. There are multiple taxpayer-specific reasons why a taxpayer would wish to un-enroll from advance payments, including if they expect to owe tax when filing their 2021 tax return.
The IRS launched an online portal where taxpayers can check eligibility, un-enroll, and update bank information: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
P&N will continue to provide coverage of economic relief opportunities and new provisions created under the ARPA and other legislation. Contact your P&N tax advisor to discuss your questions, concerns, and unique situation as it relates to the advance Child Tax Credit payments and other tax considerations.