The American Rescue Plan Act (the “Act”) expands the Child Tax Credit for tax year 2021. In addition to expanding the Child Tax Credit, the Act provides for advance payments of the 2021 Child Tax Credit.
Beginning in July, the IRS will automatically send Advanced Child Tax Credit payments to eligible taxpayers based on their 2020 tax return (or 2019 tax return if the 2020 tax return has not been filed and processed yet). The amount of the advanced payment will be up to $300 each month for each qualifying child under 6 years old at the end of 2021 and $250 each month for each qualifying child between 6 and 17 years old at the end of 2021. For example, if you have 2 qualifying children, one 4 years old and one 8 years old, you may receive up to $550 each month in advance child tax credit payments.
These payments are an advance on the child tax credit a person will claim on his/her 2021 tax return. Therefore, when a person files his/her 2021 tax return, the child tax credit amount will be reduced by the total amount of advance child tax payments received between July and December. That means that you may be required to repay some or all of the advanced child tax credit on your 2021 tax return.
Who is an eligible taxpayer?
Eligible taxpayers are:
- Married taxpayers filing a joint return or Qualifying Widows with income up to $150,000;
- Head of Household taxpayers with income up to $112,500; and
- All other taxpayers with income up to $75,000.
Who is a qualifying child?
A qualifying child is one who:
- Has a valid social security number
- Lived with the eligible taxpayer for at least half the year
- Is related to the eligible taxpayer
- The eligible taxpayer provides more than 50% of the child’s support
What does this mean?
This means that unless a person opts out, he/she will automatically receive advance child tax credit payments. Therefore, the refund amount you are expecting may be reduced. This also means that parents that alternate claiming a dependent on their tax returns may now owe money to the IRS in 2021 rather than receiving a refund.
In the coming months, the IRS has stated taxpayers will have the opportunity to opt out of the advance child tax credit payments. The IRS has also stated taxpayers will have the opportunity to update information with the IRS such as filing status or number of qualifying children.
For additional questions related to the advance child tax credit payments, please contact BMD Tax Law Attorney Tracy Albanese at firstname.lastname@example.org or (330) 253-9195.