What You Need to Know About the Child Tax Credit

Child Tax Credit (CTC) payments will begin July 15th. Here’s what you need to know about the program changes, eligibility, payment schedules, opting out of advance payments, and related IRS portals.

Child Tax Credit Changes

The American Rescue Plan, passed by Congress in March, increased the maximum Child Tax Credit in 2021 to $3,600 for qualifying children under the age of 6 and to $3,000 per child for qualifying children between ages 6 and 17. 

Prior to 2021, the Child Tax Credit provided up to $2,000 per eligible child, and 17 year-olds did not qualify for the credit.

There is a $500 credit for each dependent who is age 18 or older or a full-time college student up to age 24 during 2021.

Who is Eligible for the Child Tax Credit

The maximum credit allowance is now available to taxpayers with a modified adjusted gross income of:

• $75,000 for singles,
• $112,500 for heads of household, and
• $150,000 for married couples filing a joint return and qualified widows and widowers.

The credit phases out in two ways. The first phase-out is based on the modified adjusted gross income listed above. This first phase-out reduces the CTC to $2,000. The second phase-out starts when the modified adjusted gross income exceeds:

• $400,000 if married filing jointly, or
• $200,000 all other filing statuses.

Each phase-out reduces the CTC by $50 for each $1,000 (or fraction) by which the modified adjusted gross income exceeds the income threshold mentioned above.

Kiplinger created a calculator, which helps calculate the CTC. Please keep in mind, one half of your expected credit will be paid to you in advance each month and the other half will be given on your 2021 tax return, which you will file next year. 

For tax planning purposes, it will be helpful to determine if you don’t want half of the CTC to be paid in advance in case you need this credit to be taken on your tax return to lower your tax liability or for other purposes.

The IRS also has launched a new tool, Advance Child Tax Credit Eligibility Assistant, to help determine if you are eligible for advance payments. This tool is helpful for families that haven’t received a letter from the IRS confirming eligibility. 

What is the Child Tax Credit Payment Schedule 

Eligible families will begin to receive the advance monthly Child Tax Credit payments on July 15. The IRS will pay half the total credit amount in advance monthly payments through the end of 2021 (6 total checks in 2021). You will claim the other half when you file your 2021 income tax return (one check in 2022). 

Why You May Consider Opting Out of CTC Advance Monthly Payments

Families are not obligated to receive the advance monthly Child Tax Credit payments this year. Alternatively, you may choose to get one payment in 2022. You may want to opt-out of the advance monthly payment program if you’re expecting your circumstances to change or if the advance payments will interfere in tax planning. 

Consider opting out if:

1. You may owe money to the IRS – the IRS is using information from 2020 tax returns (or 2019 if 2020 returns are not available) to determine household eligibility and the amount of advance payments. If your 2021 return results in an overpayment after accounting for your taxable income and Child Tax Credit, the IRS will want the excess money back. It’s important to note The Child Tax Credit rules are not as flexible as the stimulus check rules regarding overpayment.
2. Your household is saving for a big expense next year – if you anticipate having a large expense next year, such as investing in a new home, you may want to unenroll from the advance payments this year to receive one large check next year.
3. You are unmarried or divorced – if you are a divorced or unmarried parent and you alternate years claiming the Child Tax Credit with your child’s other parent, you may consider unenrolling for advance payments. For example, if you took the Child Tax Credit on your 2020 tax return and received the advance payments, which are based on your 2021 return, getting the credit two years in a row could cause the IRS to ask for the money back.
4. You have older kids – many families had children as dependents in 2020 based on the eligible age range but they have since aged out and cannot be claimed as dependents in 2021.

Additionally, if your main home was outside the U.S. for more than half of 2021, you may have to pay back the money you received in advance payments.

The IRS allows families to use The Child Tax Credit Update Portal to unenroll from the advance monthly payments and instead receive the full credit after they file their 2021 tax return. If you are eligible for the Child Tax Credit and do not unenroll from the monthly payments, they will go out each month by default. 

The deadlines for unenrolling in CTC advance monthly payments are 11:59pm on each date as follows:

• June 28 for the July 15 payment
• Aug. 2 for the Aug. 15 payment
• Aug. 30 for the Sept. 15 payment
• Oct. 4 for the Oct. 15 payment
• Nov. 1 for the Nov. 15 payment
• Nov. 29 for the Dec. 15 payment

While the IRS offers FAQs and the White House has a new website providing more details about the Child Tax Credit, you may want to work on 2021 income tax liability projections with your tax professional before deciding whether to receive the advance monthly payments or opt-out.

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