2021 Changes to Child Tax Credit:
The changes are temporary and only apply to the 2021 tax year:
- The credit amount has increased from $2,000 per qualified child to $3,600 for children ages 5 and younger and $3,000 for children ages six to 17.
- The IRS will advance half of the credit in the form of monthly payments beginning July 15th. Monthly payments will be $300 for qualified children ages 5 and younger and $250 per qualified child ages six to 17.
- The credit becomes fully refundable.
Qualifications:
The IRS will calculate the advance payments based on your 2019 or 2020 return, whichever is the last one filed. If you qualify based on your prior year return, the IRS will automatically send you the advance credit each month unless you opt out. To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:
- Filed a 2019 or 2020 tax return and claimed the child tax credit or provided the IRS your information using the non-filer tool on their website.
- Resided in the U.S. for more than half the year or filed a joint return with a spouse who has a main home in the U.S. for more than half the year.
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
- The full credit is available if your modified adjusted gross income (AGI) is less than $75,000 for single, $150,000 for married filing jointly and $112,500 for head of household filers. The additional $1,000 or $1,600 credit in 2021 begins to phase out at AGI levels over this amount. The ongoing $2,000 credit per child continues to phase out at an AGI of $400,000 for married filing jointly and $200,000 for head of household or single filing status.
Why Might I Want to Opt Out of the Advance Payment?
The choice to have the child tax credit advanced may affect your tax refund or balance due when you file your 2021 return. As a result, you should consider the effects of the advance on your own personal financial position to determine if you want to opt out of the advance monthly payments. Things to consider:
- While you may be eligible for the increased payment, receiving half of those payments in advance could limit the amount you have previously used to offset taxes on your return thereby increasing the net tax due or decreasing the refund compared to prior years. This could also result in underpayment of tax penalties if you don’t meet one of the IRS safe harbors as a result.
- If you have a decrease in the number of your qualifying children from the prior year, the advance calculated is going to be higher than the amount you are entitled to. As a result, you may need to pay back part of the advance on your 2021 tax return.
- An increase in your income or a change in your filing status between 2020 to 2021 may change the amount of credit that you are eligible for. As a result, it could reduce the amount of credit you can use to offset tax on your 2021 return or could be overcalculated requiring you to pay back some of the advance with your 2021 tax return.
- Your main home was outside of the United States for more than half of 2021.
How To Opt Out
The following website can be used to determine the status of your advanced payments, your eligibility for payments, and will allow you to opt out of the advance payments.
Child Tax Credit Update Portal
- To opt out of the advance payment for a joint return filer, both taxpayers must opt out. If only one taxpayer opts out, the other spouse will still receive their half of the payment.
- You cannot currently reenroll if you opt out. The IRS expects to allow that option beginning in September 2021.
- The deadline to unenroll is approximately 2 weeks before the payment date each month.
Additional Information
IRS has provided the following link to help address questions that you may have.
2021 Child Tax Credit and Advance Child Tax Credit Payments Frequently Asked Questions
As always, reach out to us with any questions or concerns and we have a team of experts that are ready to help.
