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What Do I Need to Know About the Advance Child Tax Credit?

This is the 2021 Advance child tax credit. The IRS will start sending out payments to people who claimed eligible dependents on their 2020 tax returns starting July 15th. 

Letters started going out in June letting people know they are eligible to receive the credit, letting them know they may opt out of receiving the advance payments, and letting them know how to add or remove a child. You can do this on three online portals at the IRS website.

Unenroll from advance payments or change filing info:  https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

Child Tax Credit Non-filer Sign-up Tool: https://www.irs.gov/credits-deductions/child-tax-credit-non-filer-sign-up-tool

Advance Child Tax Credit Eligibility Assistant: https://www.irs.gov/credits-deductions/advance-child-tax-credit-eligibility-assistant

The ability to add a child born in 2021 may not be available until later in 2021.  Supposedly payments you did not receive for months already given will be made up.  For example, if you did not receive July or August, you will receive them in the remaining months. Official guidance on this has not been released yet.

The credits total $3,600 for children under 6 and $3,000 for children 6-17.  This year 17-year-old dependents are included in the full payment.

The monthly payments will be $300 per month for children under 6 and $250 for children 6-17.  If you take the monthly payments, you will still get $1800 (under 6) or $1500 (6-17) on your 2021 tax return.  If you do not want monthly payments, you will have to OPT OUT on the online portal.

If you choose to opt out, you will receive $3600 (children under 6) and $3000 (children 6-17) in your 2021 tax return.  Unlike in past years, this is a refundable credit, meaning you will receive this money even if you do not owe tax.

There are, however, income limits and phaseouts, both for the “extra” amount of $1000 or $1800 and the normal child tax credit amount of $2000. 

The extra $1000/$1800 starts to phase out at $75,000 for single filers, $112,500 for head of household filers, and $150,000 for married filing jointly filers.  The phaseout is $50 for every $1000 in income.

Higher earners not eligible for the “extra” credit are still eligible for the $2000 credit until a next phaseout.  It is gradually phased-out to $0 for joint filers with an adjusted gross income of $400,000 or more and for other taxpayers with an AGI of $200,000 or more.

The monthly child tax credit payments are exempt from past-due child support offset.  However, the credit on your 2021 tax returns in 2022 could be subject to offset.

For now, this credit is for 2021 only, although there is discussion about extending it.

A few more eligibility rules for the new child tax credit payments

  • The child must live with you for at least six months (183 days) out of the year.
  • You and your child must be US citizens.
  • For married couples filing jointly, at least one spouse needs to have a Social Security number or an ITIN. 
  • The child must also have a Social Security number. An ATIN only won't work.
  • Parents who share custody of a child cannot both receive the tax credit.  If you incorrectly claim a child this year, you will have to repay all or part of the payment next year unless your income is under the threshold.

The protection threshold phaseout starts at $60k (fully phased out at $120k) for married filing jointly and $40k (fully phased out at $80k) for single in addition to the head of household threshold of $50k (fully phased out at $100k).  This means if you incorrectly receive the payments you will not have to pay the advanced child tax credits amount back if your income is at or below the protection thresholds (or even higher because the protection amount is $2k per child and the maximum advanced payment is $1800).

For example, two parents of a 7 year-old child alternate claiming her on their tax return odd and even years.  The Father claimed her in 2020.  As a result, he receives the advanced child tax credit payments beginning in July, 2021.  These payments are based on 2021.  The Mother cannot receive them unless the father unenrolls on the IRS portal.  The Mother can file her 2021 tax return and will receive the full amount of any allowable child tax credit ($3,000).  The Father makes $39,000 in 2021.  He will not have to pay back the advanced payments he received ($1500).

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