The IRS recently made changes to the child tax credit as part of the American Rescue Plan Act. Significant changes to the tax credit include:

  1. The amount of the credit has increased for certain taxpayers.
  2. The credit is fully refundable, meaning you can receive it even if you don’t owe the IRS.
  3. The act allows for the credit to be advanced in six monthly payments. The IRS will pay half the credit in the form of advance monthly payments. Taxpayers will then claim the other half when they file their 2021 income tax return.

Increase in the Amount of Child Tax Credit
The child tax credit and advance payments are based on several factors, including the age of the children and taxpayer income.

  • The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
  • The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, the taxpayer (and spouse if a joint tax return) must have:

  • Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS information using the non-filer tool. Taxpayers who were not required to file a return for 2019 or 2020 may still be eligible for the payment. For further information, please visit the IRS Non-filer Sign-up Tool.
  • A main home in the U.S. for more than half the year, or have filed a joint return with a spouse who has a main home in the U.S. for more than half the year.
  • A qualifying child who is under the age of 18 at the end of 2021 and who has a valid Social Security number.
  • Income less than certain limits – You can take full advantage of the credit if your modified adjusted gross income is less than $75,000 for single filers, $150,000 for married filing jointly filers, and $112,500 for head of household filers. The credit begins to phase out above those thresholds.

Advanced Payments
Taxpayers who meet the qualification requirements are automatically enrolled to receive the payments and generally won’t need to do anything to receive any advance payments, as the IRS will use the information it has on file to start issuing the payments. The IRS will use the direct deposit information from the taxpayer’s most recently filed return. If direct deposit information is not available, payments will be mailed.

Using the IRS’s child tax credit and update portal, taxpayers can:

  • Update their information to reflect any new information that might impact their child tax credit amount, such as filing status or number of children.
  • Check on that status of payments.
  • Unenroll to forego the advanced payments. If a taxpayer does opt out, they will receive the “full” amount of the child tax credit on their 2021 return. Please note for married couples that filed a joint return in 2019 or 2020, both must opt-out of the payments.
Payment Month Unenrollment Date Payment Date
August 8/02/2021 08/13/2021
September 8/30/2021 9/15/2021
October 10/04/2021 10/15/2021
November 11/01/2021 11/15/2021
December 11/29/2021 12/15/2021
We are here to help you!
It is important to review your tax situation any time there is a tax law change, and the changes with the child tax credit can have a significant effect on your return, as the credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office at (419) 524-2875.

-Photo by Ben White on Unsplash