Dear Clients, Business Associates and Friends,

The 2021 advance child tax credit (CTC) payments, which were established under a recent law, will begin being made on July 15, 2021, the IRS announced. The tax agency also stated that “roughly 39 million households – covering 88% of children in the United States – are slated to begin receiving monthly payments without any further action required.”

Taxpayers are allowed a CTC for each qualifying child. The credit was temporarily expanded and made refundable for 2021 by the American Rescue Plan Act (ARPA). It phases out for taxpayers with adjusted gross incomes (AGIs) over certain thresholds (see right-hand box).

For 2021, a qualifying child with respect to a taxpayer is defined as one who is under age 18 and whom the taxpayer may claim as a dependent (in other words, a child related to the taxpayer who generally lived with the taxpayer for at least six months during the year). The child must also be a U.S. citizen or national, or a U.S. resident. 

The ARPA increased the maximum CTC – for 2021 only – to $3,600 for children under age 6 and to $3,000 per child for children ages 6 to 17, provided their parents’ income is below a certain threshold. 

Under prior law, the maximum annual CTC for 2018 through 2025 was $2,000 per qualifying child but the income thresholds were higher and some of the qualification rules were different.

Advance Payments

Under the ARPA, the IRS is required to establish a program to make periodic advance payments that in total equal 50% of the IRS’s estimate of an eligible taxpayer’s 2021 CTC. These payments are to be made during the period July 2021 through December 2021. 

The IRS has announced the payments will begin on July 15, 2021, and thereafter, they will be made on the 15th of each month unless the 15th falls on a weekend or holiday.

Recipients will receive the monthly payments through direct deposit, paper check or debit cards. The IRS says that it is committed to maximizing the use of direct deposit.

If you receive advance child credit payments more than your allowable credit for the 2021 tax year, you will generally have to repay the excess in the form of an increase in the federal income tax liability shown on your 2021 return. However, you may be allowed to keep some or all the excess payments under a safe-harbor rule, if your MAGI is below $80,000 ($100,000 for heads of households or $120,000 for married couples who file joint returns).  In January 2022, the IRS will send out Letter 6419 to provide the total amount of Advance Child Tax Credit payments in 2021 – keep this letter as it is needed to determine if you can claim additional credits or if any need to be repaid.

Should you want to opt out of the advance payments, you’ll need to unenroll directly through the IRS CTC portal (https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021) by June 28, otherwise the July 15 payment will be issued.  For couples filing jointly, both spouses must unenroll – if only one unenrolls then half of the monthly payment will be issued.  The FAQ on unenrolling can be found at https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-j-unenrolling-from-advance-payments.  The IRS website also contains a link to other Q&A about the Advance Child Tax Credit Payments.  If you unenroll, you could still claim any credit due to you when you file your 2021 tax return.  

More Facts about Advance CTCs

Eligible families will receive up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and older. The increased credit amount will be reduced (or phased out), for households with modified adjusted gross income (MAGI) above the following thresholds:

• $150,000 for married taxpayers filing jointly and qualifying widows/widowers;
• $112,500 for heads of household; and
• $75,000 for other taxpayers.

For more information, see the article “Big Changes to the Child Tax Credit for 2021.” 

If you have questions about how this guidance may impact you, please get in touch with your BHCB team contact.  We continue to be here, working for you, to provide ongoing support and information.