Advance Child Tax Credit Payments

The American Rescue Plan Act of 2021 (ARPA) expands the Child Tax Credit.

Starting in July 2021, the Treasury will issue advance payments of the child tax credit based on the last filed tax return - either tax year 2019 or 2020. The purpose of the advance payments is to provide taxpayers access to funds from the credit before their tax return is filed for tax year 2021.

The IRS will estimate the total advance credit amount, determine a monthly allotment of the advanced credit, and issue the monthly allotment between July 2021 and December 2021. The Child Tax Credit claimed on the 2021 tax return will be reduced by the total amount of advance payments received. If the total of the advance payments exceed the credit and safe harbor allowed when calculating actual 2021 tax return figures, the excess is added to the taxpayer’s tax liability for 2021.

Effective for the 2021 tax year only, the Child Tax Credit increased to $3,000 per qualifying child or $3,600 in the case of a qualifying child who has not yet reached the age of 6 by the close of the calendar year. The full amount of the Child Tax Credit is a refundable credit. Most tax credits are nonrefundable: If the credit amount exceeds the tax owed, no refund is given for the credit. Refundable credits are different: If the credit amount exceeds the tax owed, a refund may be due to the taxpayer for the credit.

The $500 per dependent credit for a dependent who is not a qualifying child did not increase and is not refundable.

Eligible taxpayers must have had a main home in the United States for more than half the year. In addition, the increased Child Tax Credit for 2021 phases out or decreases when the taxpayer’s modified adjusted gross income (AGI) exceeds the following threshold amounts by filing status:

  • Married Filing Jointly (MFJ), Qualifying Widow(er) (QW): $150,000

  • Head of Household (HOH): $112,500

  • Single, Married Filing Separately (MFS): $75,000

Taxpayers will have the opportunity to decline receiving advance payments or update information about changes in their income, filing status or the number of qualifying children. More information will be provided by the IRS soon.

Check for updates at: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

Lovie EdwardsAmerican Rescue Plan, child tax credit, American Rescue Plan Act