June 25, 2021
In the U.S. government’s ongoing effort to boost the economy, qualifying families will soon receive the Advance Child Tax Credit to aid them in paying their bills and supporting their children.
Although credit payments begin soon, there are still plenty of questions surrounding the government program. And to complicate matters further, the U.S. government has also provided a path for families who don’t want or need the credit to opt out of the program.
There’s plenty of confusion surrounding the Advance Child Tax Credit. And below, we highlight some of the key points and features you need to keep in mind. And as always, if you have specific questions about your unique circumstance, feel free to contact a Perlson LLP professional at 516-541-0022 to discuss.
What is the Advance Child Tax Credit?
The Advance Child Tax Credit is an offshoot of the standard Child Tax Credit parents and guardians can, when they qualify, take advantage of on their tax returns.
At its simplest, the Advance Child Tax Credit aims at providing the typical Child Tax Credit to families this summer instead of forcing them to receive the credit after they file their 2021 taxes next year. The Advance Child Tax Credit will only be available in tax year 2021 and the IRS anticipates continuing the program in its original form in 2022 and beyond.
That program allows for families to earn a credit on their taxes if they have qualifying children, live in the U.S., and hit certain income thresholds. The Advance Child Tax Credit, however, allows for those same people to receive half of their credit in monthly installments starting in July. The remaining 50% of their tax credit will be applied on their 2021 taxes after they file next year.
Ultimately, the U.S. government hopes the advance will aid families at a time of need and mitigate negative effects of waiting for the entire tax credit in 2022.
How much credit will eligible families receive?
The IRS will allow families to receive credits based on qualifying children’s ages. A child under 6 years of age, for instance, may qualify for a $3,600 annual tax credit. Children between the ages of 6 and 17 qualify for an annual credit of $3,000.
Through the end of 2021, eligible families will be allowed to receive half of their credits in equal monthly installments. For older children, for instance, that translates to a monthly payment of up to $250 per month. For younger children, the payment is up to $300 per month.
How does the IRS determine the credit and who qualifies?
The IRS mandate on the Advance Child Tax Credit requires that eligible families must have filed a 2019 or 2020 tax return and claimed the Child Tax Credit on their returns in those years. Additionally, taxpayers must have a home in the U.S. in which they use as their main residence for over half the year. Families must also show proof that they have a qualifying child or children under the age of 18 at the end of 2021 with valid Social Security Numbers.
Most importantly, however, the credit is only available to those who fall within income limits. Higher-earning taxpayers will see their total credit phase out or be eliminated entirely, depending on how much they make.
Here are the applicable brackets. Those whose AGI falls into these categories will receive a full credit. Phase-outs begin above these limits:
$150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
$112,500 if filing as head of household; or
$75,000 if you are a single filer or are married and filing a separate return.
How will taxpayers receive the credit?
The IRS intends to send checks to the estimated 39 million eligible households each month starting in July. The IRS has said that it will send out checks on this cadence:
• July 15
• Aug. 13
• Sept. 15
• Oct. 15
• Nov. 15
• Dec. 15
The second half of the child tax credit will be applied on taxpayers’ 2021 tax returns.
Can I opt-out of the credit?
The IRS has provided a path for taxpayers who aren’t interested in receiving monthly checks to opt out of the program with a special tool on its website. There (and before June 28), taxpayers can opt out of the checks and instead receive the entire credit on their 2021 tax returns. Here’s the link to unenroll from the advance payments.
How do I enroll in the program?
Like other stimulus programs, the IRS has made it simple for families to receive the credit. Anyone who already qualifies for the program will receive the credit on the above-mentioned timeline. There is no need to enroll or actively sign up for the credit.