Last week, the IRS began sending families monthly payments of up to $300 as an advance for their 2021 expanded Child Tax Credit (CTC). Did you receive it? Should you have?
The expanded CTC was created as part of the American Rescue Plan. It increases the existing credit of $2,000 to provide families a total of up to $3,000 for each child ages 6 to 17 and to $3,600 for each child under age 6.
The IRS estimates that 39 million households will receive the payment this month, translating to coverage of nearly 90% of all U.S. children.
To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
- Given us your information in 2020 to receive the Economic Impact Payment using the “Non-Filers: Enter Payment Info Here” tool;
- A main home in the United States for more than half the year (in the 50 states or the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; AND
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; AND
- Made less than certain income limits.
The amount a family receives is based on income. To qualify for the expanded childcare tax payments, families must earn an adjusted gross income that does not exceed $150,000 if married and filing jointly or $75,000 for individuals. Families earning a combined adjusted gross income of more than $400,000 or $200,000 for individuals will see their credits incrementally reduced to less than $2,000 per child.
A key item to keep in mind is that qualification is based on a family's 2021 taxes, but advance payments are delivered using 2020 or 2019 tax information which may no longer reflect a family's situation this year. And unlike the stimulus payments, the advance child tax credit payments may have to be repaid. Those who don't qualify and fail to opt out will ultimately have to repay the amount they receive next tax season.
The IRS will issue a letter in January, 2022 with the total amount of payments disbursed during 2021 (Letter 6419 January 2022) and any excess amounts WILL need to be paid back.
To opt out, individuals must make this request through the IRS Child Tax Credit Update Portal. Also, both spouses will need to opt out if filing jointly.
On the other hand, if you qualify for a child tax credit now in 2022 but did not qualify before – (congratulations on your new baby!) you will be able to claim the enhanced child tax credit when you file your 2021 taxes. You just won’t receive the credit as monthly payments in 2021.
Additional information from the IRS can be found at the IRS FAQ page.
Please contact your RINA professional if you have questions or concerns.