The first advance child tax credit (CTC) payments will be made on July 15, 2021, as part of Joe Biden’s American Rescue Plan. The credit may be a helpful boost for families who lost income in 2020. But, as is the case with any tax overhaul, logistics may seem a bit nebulous.
How has the CTC been expanded?
To prevent confusion about whether you qualify and whether it makes sense to claim the new CTC, start by considering how the credit compares to previous years.
By going directly to the IRS website, you will notice some things immediately:
- Your tax credit may have increased if your 2020 income was higher than that of 2019
- Your dependent’s qualifying age has increased from 16 to 17 years of age
- The tax credit is now fully refundable (meaning you do not have to claim it on your taxes) even for taxpayers with little to no tax liability
Let’s look at the numbers
What you qualify for is based on your most recent completed tax return.
Qualifying taxpayers will receive $5,000 for each child under the age of five and $3,600 for all children between the ages of six and 17. This has been increased from the $2,000 you may have received for each child in 2020.
These amounts are reduced starting at $150,000 for married and joint-filing, $112,500 for heads of household, and $75,000 for all other taxpayers. The credit decreases at 5% of adjusted gross income over the aforementioned amounts until reaching the 2020 amounts. Simply, starting at the phase-out levels, the CTC goes down by $50 for every $1,000. The previously available $2,000 remains available to an income level of $400,000 for married couples and $200,000 for individuals, which are the upper level for any CTC eligibility.
How is it paid?
You should soon be receiving an eligibility letter in the mail from the IRS, which confirms whether you qualify for the credit. You will then receive a second letter that confirms the exact payment for which you qualify based on your 2019 or 2020 tax returns, depending on whether 2020 has been completed. The IRS will then begin distributing half of the total amount that you qualify for in tax payments over this schedule:
- July 15th
- August 13th
- September 15th
- October 15th
- November 15th
- December 15th
You will then receive the rest of your credit when you file your 2021 return.
The IRS will distribute the payment by ACH, check, or debit card. It will also be setting up an online portal by July 1st, which will provide additional information for taxpayers who would like to track or make changes to their payments.
Can I opt out of the 2021 CTC?
You may have reasons that you’d prefer to opt out of receiving monthly payments this year.
If your 2020 income is too high to qualify, you won’t have to worry about this in the first place. If you choose to opt out of the monthly payments and elect to receive one lump sum with your next tax return, you may do so. This will be done using the IRS portal, and you will receive your payment after your 2021 tax return is processed.
Expect two letters in the mail from the IRS; one which confirms whether you qualify and a second which confirms for how much. Next, the IRS will open up an online portal to select whether you would like monthly payments or a lump sum. If you opt for monthly payments, you will receive them from July through December. If you opt-out, expect to receive your lump sum after filing your tax return in 2022.
We hope that this all runs smoothly. If you have any further questions, we are happy to assist.