Child Tax Credit Advance Payments

Q: I’ve heard that the IRS will start making advance payments toward the Child Tax Credit of 2021 this summer. What do I need to know about these payments?

A: The government will distribute advance payments monthly to eligible families, beginning July 15, 2021. Here’s what you need to know about these payments.

What are the changes to the Child Tax Credits for 2021?

As part of the American Rescue Plan Act (ARPA) of 2021, the Child Tax Credit (CTC) for the 2021 tax year will be significantly expanded.

Here are the most important changes to the CTC for 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. The credit will include children who turn 17 in 2021.
• Families claiming the CTC will receive $3,600 per qualifying child under age 6 at the end of 2021.
• The credit for qualifying children is fully refundable. This means taxpayers without earned income or who don’t owe income taxes can benefit from the credit.
• Advance payments of up to 50% of the total CTC per family will be distributed once a month, from July 15 through Dec. 15, 2021.

In 2020, the CTC amount was up to $2,000 per qualifying child under 17 at the end of the year. Also, the credit was only refundable by up to $1,400 per child.

Who is eligible for the Child Tax Credits?

Taxpayers who have a primary residence in the U.S., and reside in it for at least half of the year, are eligible to receive the child tax credits.

Married taxpayers filing a joint return and earning more than $150,000 a year, heads of household earning more than $112,500 a year, and all other taxpayers earning more than $75,000 a year receive reduced payments based on income. Income eligibility will be based on 2020’s tax return (more on this later).

Do I need to take any action to receive the monthly payments?

Taxpayers need not take any steps to receive the advanced Child Tax Credits. Of course, taxpayers need to file their 2020 taxes, which were due on May 15, 2021. Filing electronically may speed up the receipt of the CTC payments.

How much money will I receive each month through the advanced Child Tax Credits?

The advance payments being sent to qualifying families from July through December will be equal to up to 50% of each family’s total Child Tax Credit. The payments will be based upon the income information found in taxpayers’ 2020 tax returns. If these were not filed yet, the 2019 tax returns will be used to determine each family’s eligibility.

Families eligible for the full CTC will receive half of the total across a six-month time span. This means eligible families will receive a total of $1,800 for children under age 6, or $300 a month per child from July through December, and a total of $1,500 for children ages 6-17, or $250 a month per child from July through December.

How will I receive my monthly payments?

The IRS has announced that payments will be issued in the same way as the three stimulus payments distributed to all eligible taxpayers since the start of the pandemic. If you received your stimulus payments via paper check, you’ll likely receive the CTC payments the same way. If you received them via direct deposit, expect the same now.

There is a caveat for those who have not elected to receive their Economic Impact Payments via direct deposit but electronically filed their 2020 taxes. These taxpayers will receive their CTC payments the same way they filed their taxes; either electronically or via direct deposit.

Can I decline the opportunity to receive the advance payments of the 2021 Child Tax Credits?

Eligible taxpayers can decline advance payments of the 2021 Child Tax Credit. The IRS has not yet provided the public with instructions for how to officially decline the advance payments but has promised to update its website when the instructions become available.

Is it a good idea to decline the advance payments of the 2021 Child Tax Credits?

While it is generally better to receive money owed to you upfront, under certain circumstances it may be better to decline the advanced Child Tax Credits.

If you don’t think you will be eligible for the full CTC amount at the end of 2021, you may end up owing the IRS some or all of the money you received when you file your 2021 taxes. This can happen if your income level rises in 2021, or if you have primary custody of the child(ren) receiving the credit in 2020, but not in 2021. If either of these may apply to you, consider opting out of the advance CTC payments. You won’t miss out on these payments, as you’ll receive whatever is owed to you at the end of 2021.

The advance CTC payments will benefit families struggling with the pandemic’s financial fallout, but it may not be in every taxpayer’s best interest to accept these payments now. Use our guide to brush up on the details of these payments so you can make an informed decision.

Your Turn: How do you plan to use the advanced Child Tax Credits? Tell us about it in the comments.

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Sources:

Advance Child Tax Credit Payments in 2021 | Internal Revenue Service (irs.gov)

Here’s what you need to know about those child tax credit payments (ksat.com)

New monthly child tax credit payments start July 15. What to know (cnbc.com)

Why You Might Want To Delay Child Tax Credit Money (thebalance.com)