Advance Child Tax Credit Payments in 2021

The Advance Child Tax Credit is estimated to benefit around 39 million American families in 2021 alone. There are a few different options the IRS has put into place in regards to redistributing money. The IRS is planning on creating two online portals to help make it easier to receive the Child Tax Credit which should be coming out July 1st. One portal is designed for parents who would prefer to get their payment in full, rather than monthly payments. The other portal is designed for parents who don’t normally file their tax returns, or had a change of situation (ex: another child that wasn’t listed on their previous return). There is also an option to opt out of these payments altogether.

There is still a lot of new information to learn but here’s what we know from the IRS so far:

There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.

The expanded credit means:

• The credit amounts will increase for many taxpayers.

• The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don't have earned income or don't owe any income taxes.

• The credit will include children who turn age 17 in 2021.

• Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.

For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.

The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.

Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).

The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they're eligible for the appropriate amount of the CTC as well as any other tax credits they're eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.

Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.

Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.

The IRS also urges community groups, non-profits, associations, education groups and anyone else with connections to people with children to share this critical information about the CTC. The IRS will be providing additional materials and information that can be easily shared by social media, email and other methods.

The IRS will provide more information about advance payments soon. If you’re wanting to gauge what you’ll receive from the Child Tax Credit there’s a fairly simple calculator from Kiplinger to use in the following link, https://www.kiplinger.com/taxes/602334/2021-child-tax-credit-calculator. If you’re wanting to discuss the Child Tax Credit and figure out what the best plan for you is, contact the tax team at Patrick & Raines. You can reach us by calling (904) 396-5400 or emailing Office@CPAsite.com.

© 2021