IRS To Start Sending Advance Child Tax Credit Payments July 15th
by Amanda Fair, CPA
The IRS has recently mailed letters to over 36 million taxpayers alerting them to the fact that they may be eligible for an advance payment of their 2021 child tax credit. In addition to this initial letter, the IRS will be sending a second letter in the coming weeks which will be personalized with an estimate of the monthly payment the taxpayer will receive. Payments will be made on July 15, August 13, September 15, October 15, November 15, and December 15.
These advance payments were part of the many changes made to the child tax credit by the American Rescue Plan Act (ARPA) that was signed into law by President Biden in March 2021. The new legislation made temporary changes to the existing child tax credit that are applicable only to the 2021 tax year. Those changes include:
- Modifying the definition of a qualifying child to increase the maximum age from 16 to 17,
- Increasing the current $2,000 child tax credit by providing an additional $1,600 for children under 6 (a total of $3,600) and $1,000 for children ages 6 – 17 (a total of $3,000),
- Making the child tax credit fully refundable, and
- Providing up to 50% of the total child tax credit (up to $1,800 for children under 6 and up to $1,500 for children ages 6 – 17) during 2021 through monthly payments.
The phase-out limits that existed prior to the enactment of the ARPA are still in place for the existing $2,000 child tax credit ($400,000 for MFJ and $200,000 for all others). However, there are different phase-out limits for the additional child tax credits of $1,600 and $1,000. Those limits are $150,000 for MFJ and qualifying widows or widowers; $112,500 for HOH; and $75,000 for all others. For taxpayers whose AGI exceeds those limits, the amount of additional child tax credit will be reduced by 5% of the amount their AGI exceeds their applicable threshold.
Beginning July 15th, the IRS will make advance monthly payments of 1/12th of the calculated total child tax credit to eligible taxpayers who have a main home in the US for more than half the year, up to $250/month for children 6-17 and $300/month for children under 6. No action is required from eligible taxpayers to receive those payments. If a taxpayer’s 2020 tax return has been filed and processed, the IRS will use that information to calculate the anticipated child tax credit for 2021. If not, the IRS will base the calculation on the 2019 tax return. Non-filers who used the online portal in 2020 to register for an Economic Impact Payment may also be eligible.
The IRS intends to open multiple online portals by the end of June. Taxpayers can use these online tools to update direct deposit information as well as any changes that will affect the child tax credit calculation such as changes in their income, filing status, or the number of qualifying children (for example, the birth of a child during 2021). Taxpayers who wish to opt out of advance payments will also be able to do so through an online portal. Reasons that a taxpayer may choose to opt out of those payments include the taxpayer anticipating a tax liability for 2021 that they wish to apply the full credit amount towards or preferring to receive the child tax credit in a lump sum once their 2021 return is filed. Taxpayers will also use these online portals to check on the status of their payments.
Amounts received in advance will reduce the child tax credit available to be claimed on a taxpayer’s 2021 income tax return; therefore, we recommend keeping a record of all amounts received in advance so those amounts can be properly reflected when filing your 2021 tax return.
Click Here: To access the IRS website that will be updated as they release additional information and will provide access to the online portals, when they are made available.
If you have any questions regarding the advance child tax credit, please do not hesitate to reach out to your trusted BRC tax advisor.