Advance Payments of Child Tax Credit to Begin July 15
The IRS has announced that the first monthly payment of the expanded and newly-advanceable Child Tax Credit from the American Rescue Plan will be made on July 15. Roughly 39 million households, covering 88% of children in the United States, are slated to begin receiving monthly payments without any further action required.
The IRS has also announced the increased Child Tax Credit payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday. Families who receive the credit by direct deposit can plan their budgets around receipt of the benefit. Eligible families will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. These payments are projected to lift more than five million children out of poverty this year, cutting child poverty by more than half.
Households covering more than 65 million children will receive the monthly Child Tax Credit payments through direct deposit, paper check, or debit cards. While most taxpayers will not be required to take any action to receive their payments, the IRS will continue outreach efforts with partner organizations over the coming months to make more families aware of their eligibility.
Advance Child Tax Credit payments in 2021
The American Rescue Plan Act of 2021 expands the Child Tax Credit for tax year 2021 only. Under prior law, the amount of the Child Tax Credit was up to $2,000 per qualifying child under the age of 17 at the end of the year. The new law expands the credit as follows.
• The credit amounts are increased to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021, and $3,600 per qualifying child under age 6 at the end of 2021,
• The credit for qualifying children is fully refundable,
• The credit will include children who turn age 17 in 2021,
• Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.
The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers. Advance payments of the 2021 Child Tax Credit will be made regularly starting July 15, 2021 through December of 2021 to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).
Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so. Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. This will be done through an on-line portal which allows taxpayers to elect out, or to provide updated information which would be relevant to a modification of the annual advance amount, such as a change in the number of qualifying children, a change in marital status, a change in income, etc. More details on how to take these steps will be announced later.
Note: Unlike the stimulus checks, if the advance payments exceed the allowable Child Tax Credit when filing the 2021 return, the excess will increase the tax liability on the return. A safe harbor, however, might help to reduce the excess that needs to be paid back. Taxpayers who expect their income to increase above the AGI phase-outs for 2021 should consider electing out of receiving advance payments.