2021 CHILD TAX CREDIT AND ADVANCE CHILD TAX CREDIT PAYMENTS: SHOULD YOU CONSIDER OPTING OUT OF THE ADVANCE?
October 26th, 2021
If you have dependent children living with you, you may have started receiving monthly payments from the IRS of either $250 or $300 per qualifying child beginning in July 2021. These are Advance Child Tax Credit Payments (ACTCP) created by the American Plan Rescue Act that was passed on March 11, 2021. Here are a few things we think you should know about the Advances and changes to the Child Tax Credit (CTC) for 2021:
- For the tax year 2021 (only at this point although there is legislation pending via budget bills that would extend it), the Child Tax Credit is increased from $2,000 per qualifying child to:
- $3,600 for children ages 5 and under at the end of 2021;
- $3,000 for children ages 6 through 17 at the end of 2021.
- For the tax year 2021, the CTC is now a “refundable credit”, meaning if the amount of credit exceeds taxes owed or you didn’t owe any taxes, you will still get the credit or a portion of it in the form of a refund. Previously, it was a “non-refundable credit” and only reduced your taxes up to the total amount of tax owed. If there was excess credit left over, it was simply forfeited.
- If you are eligible to receive the CTC based upon your 2019 or 2020 tax filings (as determined by an IRS estimate), half the total credit amount will be automatically paid in advance monthly payments and you will claim the other half when you file your 2021 income tax return. The first advance payments were sent (via direct deposit or check) on July 15, 2021.
- Eligibility to receive the CTC and ACTCP starts being phased out (the amount of credit reduced) if your modified Adjusted Gross Income in 2021 exceeds:
-$150,000 -$400,000 for Married Filing Jointly;
-$112,500 – $200,000 for Head of Household;
-$75,000 -$200,000 for Single or Married Filing Separately.
- The IRS will be sending you Letter 6419 in January 2022 detailing the total amount of ACTCPs you received or should have received during 2021. PLEASE KEEP THIS LETTER and bring it to your tax preparer with your other tax records when you are ready to file your 2021 tax return.
- These Advance Child Tax Credit Payments will be RECONCILED on your 2021 Federal Income Tax return. If your circumstances change between 2019/2020 (the basis for the IRS’s estimate) and 2021, you may have to repay part or all of the ACTCP in the form of an additional income tax.
- You can opt-out of receiving these advance payments and instead use the entire CTC for which you are eligible when you file your tax return by going to:
If you do not need the additional monthly cash flow and/or have fluid family/life/income situations, we recommend that you carefully consider your options when deciding whether or not to keep receiving the Advance Child Tax Credit Payments to avoid unexpected negative result next tax season. Click on this link https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021 for more helpful information about this new program.