Starting July 2021, the IRS and the Department of the Treasury have sent more than $15 billion in advance payments to families that qualify for the expanded child tax credit. The majority of households began to receive their first monthly installment mid-July. Most eligible families need do nothing in order to receive the payments, but should understand the implications. Advance payments may or may not make sense for your household, even if you qualify for them. Here are a few highlights:
ABOUT THE CTC
- CTC: Child Tax Credits (CTC) operate differently than a deduction. A credit reduces the amount of taxes you owe.
- Refundable: CTC is fully refundable, which means that even taxpayers with no federal tax liability can benefit.
- Expansion: The American Rescue Plan Act significantly expands the credit, only for 2021. Taxpayers can take advantage of half of the benefit in 2021, rather than waiting until tax time in 2022.
- Eligibility (Income Levels): There are limits to eligibility (not eligible if income exceeds $400,000 for joint filers and $200,000 for other filers). This continues under the ARPA – for the first $2,000. A separate phase-out applies for the increased amount: $75,000 for single filers, $112,500 for heads of household, $150,000 for joint filers.
CTC ADVANCE PAYMENTS
- Payments: Monthly payments of half of the credit will begin in July 2021, with the remaining half to be claimed in 2022 on 2021 tax returns.
- Qualification: To qualify for these advance payments, you must have:
- Filed a 2019 or 2020 tax return that claims the CTC on the return, or
- Given the IRS your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
- A main home in the United States for more than half of the year or file a joint return with a spouse who has a main home in the United States for more than half the year; and
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
- Earned less than the applicable income limits
- Direct Deposit: If the IRS has your bank information you’ll receive the payments as direct deposits. Payments will be based off of your 2020 tax return. If you receive excess payments over the amount you actually qualify for, unlike excess stimulus payments, you’ll be required to repay the excess.
- Opting out: You will automatically be enrolled for advance payments if you qualify, but there is also an online portal where taxpayers can opt out. If you are or were near the income limit, or there will be a change in dependents, we would recommend that you opt out. The deadline to opt out of the first payment was June 28, 2021, but you can opt out for future payments.
Questions? See the IRS CTC portal.