The IRS has released an important update to help people manage the Child Tax Credit (CTC) that was temporarily expanded (and made refundable by advance payment) in the American Rescue Plan Act of 2021. This tax credit has the potential to bring substantial monetary relief to millions of families with children.
Here’s a quick summary of the new information and additional program enhancements you can expect to see through the summer and fall of this year.
When do the advance payments start?
These advance payments from the IRS are expected to start on July 15, 2021 and will arrive on the 15th of the month through December 2021, except for the August payment, which is scheduled for August 13, 2021. Most tax credits are normally realized in the spring once you’ve filed for the previous tax year. What’s unique about these CTC payments is that the American Rescue Plan Act provisions make them available to eligible recipients during the current tax year.
Who is eligible for the advance payments?
One reason this is such a welcome benefit for families is that they may be eligible for the advance credit payments even if they don’t earn enough money to file a tax return. If they meet the IRS eligibility guidelines, they do not have to pay this money back. The CTC is available to parents who earn up to $150,000 per year as a couple (married filing jointly), or single parents who earn up to $112,500. At this income level, the credit is $3,000 for each child under age 18, and $3,600 for each child under age six. The amount of the CTC decreases to $2,000 on a sliding scale for parents who earn more.
Will eligible parents receive all the money at once?
It’s important to note that the CTC is not paid out in a lump sum. Because the program starts in the middle of the 2021 tax year, the Treasury Department is paying out half of the credit in monthly installments from July through December. The remaining half will arrive after 2021 taxes are filed. Eligible parents who don’t earn enough to file a return can use this IRS Non-Filer Sign-Up Tool to make sure they don’t miss out on the advance payments this year.
Are eligible parents able to opt out of receiving the payments?
Yes, some parents depend on the CTC to offset their tax liability when they file their tax return. For those individuals that want to opt out of receiving the payments early so that the full benefit is included on their income tax at the end of the year, can use this Unenroll from Advance Payments Tool. It should be noted that both spouses must unenroll for the payments to be suspended.
Contact Clayton & McKervey to learn more about the CTC
We’ve only covered a few essential highlights here, but there is more to know about the Advanced Child Tax Credit payments. We encourage you to explore the updated Frequently Asked Questions page provided by the IRS to get more details about your own eligibility and next steps. The IRS is actively improving their CTC Update Portal. Helpful enhancements on the way include a Spanish language option, the ability to track payment history, and the ability to update personal and banking information. As always, we invite you to contact us to discuss how the Child Tax Credit may impact your individual tax situation.