CTC – Advance Payments
You may have already heard about the advance Child Tax Credit payments as a result of the American Rescue Plan Act of 2021 which was signed into law on March 11, 2021. In June, the IRS sent Letter 6417 to Taxpayers. This letter was to inform you of the estimated amount of your monthly advance Child Tax Credit payments.
These payments will begin July 15, 2021 and go through December 2021. The IRS will pay half of the total credit in monthly payments during this time period. The other half of the credit will be claimed on your 2021 tax return. The Child Tax Credit amounts have been increased for 2021 to be $3,000 per qualifying child or $3,600 if the child is under the age of 6.
The full amount of the Child Tax Credit will begin to be phased out beginning with taxpayers with a modified AGI of $75,000 for single filers, $112,500 for Head of Household filers, and $150,000 for Married Filing Joint filers. The credit is reduced by $50 for every $1,000 of Modified AGI above the applicable threshold.
In order to qualify for advance Child Tax Credit payments, you (and your spouse, if you filed a joint return) must have:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
- Provided the IRS your information in 2020 to receive the Economic impact payments using the Non-Filers tool; and
- Have a main home in the United States for more than half the year; and
- Have a qualifying child who is under the age of 18 at the end of 2021 who has a valid Social Security Number; and
- Made less than certain income limits (addressed above)
The IRS will use information you provided to determine if you qualify and automatically enroll you for advance payments. You generally do not need to take any additional action to get the advance payments. However, you can check to see if you have been enrolled to receive the advance payments by visiting the Child Tax Credit Update Portal at: https://www.irs.gov/credits-deductions/child-tax-credit-update-portal. This same portal can be used to unenroll so you stop receiving advance payments. You can also update your bank account information using the Child Tax Credit Update Portal.
If the number of qualifying children you can claim on your 2021 tax return has decreased from those claimed on your 2019 or 2020 tax return (whichever has been filed most recently) AND you receive advance Child Tax Credit payments, it is possible that you will need to repay any overage of advance Child Tax Credit payments you receive. This reconciliation will occur on your 2021 tax return. If you are in this situation, you may wish to choose to unenroll from receiving advance Child Tax Credit payments.
Later this summer the Child Tax Credit Update Portal is planned to also allow Taxpayers to make changes to the number of dependents, marital status, and income used in calculating the amount of advance Child Tax Credit payments. It will also let you re-enroll if you have previously unenrolled. The exact timing for these enhancements to the Portal is not known. The IRS has indicated “Late summer.”
The amount of Child Tax Credit ultimately allowed will be calculated on your 2021 tax return. Any shortage in Child Tax Credit received in advanced payments or excess will be reconciled on the tax return. In other words, if the amount of credit paid to you is less than you deserve, the difference of what you received and should have received will be incorporated on your 2021 tax return. You WILL get the full credit you deserve. Similarly, if you receive too much in advance payments, it is possible that you will need to include the excess in income. There are repayment protection limits for those with income below certain thresholds. Those in the repayment protection limits will be excused from repaying some or all of the excess. Those who do not qualify for the repayment protection limits will report the overage as income on their 2021 tax return.
Repayment Protection Limits – if your 2021 modified AGI is below the following amounts you qualify for the repayment protection rules:
- $120,000 if you are married filing joint or filing as a qualifying widow or widower;
- $100,000 if you are filing as head of household; and
- $80,000 if you are a single filer or married filing separate
In January 2022, the IRS will issue Letter 6419 which will provide the total amount of advance Child Tax Credit payments received. Recipients will want to hold onto this Letter as it will be needed in preparing the 2021 tax returns.
Please do not hesitate to reach out if you have any questions.