The Advance Child Tax Credit

The American Rescue Plan Act of 2021 (“ARPA”), signed by President Biden on March 11, 2021 enacted an increase in the child tax credit for 2021. Below is a summary of the credit, which will be partially paid in advance.

• Qualifying children include children up to the age of 17 (if a child turns 18 in 2021, they are not eligible for the credit).
• The child must live with the taxpayer for at least 6 months out of the year.
• The credit is increased from $2,000 per child to $3,000 per child ($3,600 for children under the age of 6) for 2021.
• The credit will phase out once a taxpayer reaches a certain adjusted gross income (“AGI”). The credit phases out between $75,000 and $240,000 for single filers and between $150,000 and $440,000 for married filing jointly filers.

Taxpayers normally claim the child tax credit when they file their tax returns. The increased child tax credit will be distributed, partly, in monthly payments as an advance credit. The payments will be sent out every month beginning July 15^th, continuing through the remainder of 2021. The credit will be made in monthly payments of $300 per child for children under 6 and $250 per child for children ages 6 to 17 (for taxpayers entitled to the full credit amount).

Pre-payment amounts of the credit will be reduced based on the AGI that the IRS has on record from the most recently filed tax return. The credits will be delivered the same way that taxpayers received their tax refund or stimulus payments. The remaining half of the credit will be paid when the 2021 tax return is filed.

Advance payments will be made automatically for qualifying taxpayers who filed their 2020 or 2019 tax returns claiming dependents. Households that do not file tax returns because their income is too low are still able to receive the child tax credit payments. The IRS has opened a new online portal where households that don’t file tax returns can register their information.

Any taxpayer who does not receive advance payments, but is entitled to the child tax credit, may claim the credit on their 2021 tax return. The credit is a refundable credit, meaning that you do not have to owe tax to take the credit. A taxpayer can opt out of the monthly payments if they wish. If a taxpayer opts out of the advance payments, the entire credit should be claimed on their 2021 tax return.

The increased child tax credit is a temporary credit and is only available for the 2021 tax year. If you have a new child during 2021, you are entitled to the credit for that child, and will likely claim the full credit you are owed on your 2021 tax return.