The IRS will begin sending advance child credit payments to eligible taxpayers starting July 15. The IRS recently sent letters to over 36 million taxpayers who may be eligible to receive the advance credits based on information they included in either their 2019 or 2020 federal income tax return or who was a non-filer that registered for an Economic Impact Payment.
Families who are eligible for advance Child Tax Credit payments will receive a second, personalized letter listing an estimate of their monthly payment, which begins July 15.
Eligible families will begin receiving advance payments, either by direct deposit or check. The payment will be up to $300 per month for each qualifying child under age 6 and up to $250 per month for each qualifying child ages 6 to 17. The IRS will issue advance Child Tax Credit payments on July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.
Most families do not need to take any action to get their payment. The IRS will calculate the payment amount based on the 2020 tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS will instead determine the payment amount using the 2019 return. If your clients have not yet filed the 2020 or 2019 return, the IRS is urging that they file as soon as possible in order to receive any advance payment they’re eligible for.
The IRS is adding online resources to help with the advance Child Tax Credit. One of these tools will enable families to unenroll from receiving these advance payments and instead receive the full amount of the credit when they file their 2021 return next year. Later this year, individuals and families will also be able to go to IRS.gov and use a Child Tax Credit Update Portal to notify IRS of changes in their income, filing status, or number of qualifying children; update their direct deposit information; and make other changes to ensure they are receiving the right amount as quickly as possible.
The IRS has created a special Advance Child Tax Credit 2021 page at IRS.gov/childtaxcredit2021, designed to provide the most up-to-date information about the credit and the advance payments.
Child Tax Credit Changes
The American Rescue Plan Act provided special rules for 2021 that increase the child tax credit to $3,600 per child under the age of 6, and $3,000 per child ages 6 through 17. Before 2021, the credit was worth up to $2,000 per child and 17 year olds were not considered qualifying children.
In addition, the 2021 additional child credit will be fully refundable and the $2,500 earned income requirement has been eliminated. This means that eligible families can receive the credit, even if they owe no federal income tax. Before 2021, the additional child credit was limited to $1,400.
The Child Tax Credit will basically have two sets of phase-outs.
The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:
• $75,000 or less for singles,
• $112,500 or less for heads of household, and
• $150,000 or less for married couples filing a joint return and qualified widows and widowers.
Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every extra $1,000 in modified AGI. Once the increased credit amount is fully reduced, the credit plateaus at $2,000, and the phaseout begins as in prior years at $200,000 ($400,000 for MFJ).
Starting in July,2021 the Treasury will issue advance payments amounting to 50% of the credit based on the taxpayer’s 2019 or 2020 tax return information. These payments will be reconciled on the 2021 tax return. These expanded benefits of the Child Tax Credit are only available for 2021. Unless extended, the rules for 2022 will revert back to those in place for 2020.
For the most up-to-date information on the Child Tax Credit and advance payments, visit Advance Child Tax Credit Payments in 2021.
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