Beginning in July many families will start receiving monthly payments towards their 2021 Child tax Credit
Keep in mind this is not new or free money
These payments are an advance on the Income Tax Credit you might otherwise receive with your
2021 Income Tax Return
In March 2021 Congress passed into law the American Rescue Plan Act of 2021. One feature of this law is the provision to increase the Child tax Credit from the previous $2,000 per qualifying child to the following amounts:
- Children under the age of 6 increased to $3,600
- Children aged 6 to 17 increased to $3,000
There are income limitations - the additional credit over the previous $2,000 per child phases out with incomes over Modified Adjustment Gross Income as follows:
- Head of Household $112,500
- Married or Qualifying widower $150,000
The Act also includes a provision to pay the credits in advance. The implied reason is to get the money in the hands of families that need the support at the time they need it instead of waiting for a lump-sum payment after filing their income tax return early next year. The payments will be welcome stipends to those families. As an example, a family that fully qualifies for the advance payments and has three children aged 10, 6 and 4 would receive a Child Tax Credit of $9,600 ($3,000 + $3,000 + $3,600) for 2021.
The Advance Payments that family will begin receiving in July will be $800 per month ($250 + $250 + $300).
Keep in mind this is an ADVANCE on the Child Tax Credit you would otherwise receive with your tax return and it will have a material impact on the outcome of the tax return filing.
In the above example the taxpayer will receive $4,800 in advance payments during 2021 ($800 per month for six months). If that family would have otherwise qualified for a $6,000 refund with the filing of their 2021 income tax return, that $6,000 refund will be reduced by the $4,800 received as Advance Child tax Credit payments, reducing the refund to $1,200.
Some taxpayers could be in a situation where the taxpayer would otherwise receive an income tax refund, but the Advance Credit reduces the refund to $-0- or possibly owing money.
For the great majority of cases the Advance will simply reduce the refund associated with the 2021 income tax return. The important thing to note is the payments that begin being paid in July are ADVANCES against you income tax return.
If you do not want the Advance Payments you can Opt-Out
The law provides an opportunity to Opt-Out of receiving the Advance Payments in favor of receiving the credit with your income tax return or providing updated information to receive the correct advance payment. The IRS website for managing your Advance Payments is located here:
As always, this alert is not meant to answer all questions for all situations. If you have a particular question please contact our office.
Phone: 215-659-3200 Fax: 215-659-3331
301 Davisville Road, Willow Grove, PA 19090
