Opt-out requests for first payment due Monday, June 28
The 2021 advance child tax credit (CTC) payments 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.”
More Facts About Advance CTC Payments
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.
Households with modified adjusted gross income below the following thresholds will receive advance payments based on the 2019 or 2020 tax information available to the IRS, with no further action required.
- $150,000 for married taxpayers filing jointly and qualifying widows/widowers;
- $112,500 for heads of household; and
- $75,000 for other taxpayers.
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.
For 2021, a qualifying child with respect to a taxpayer is defined as one who is under age18 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, and have a Social Security number.
The ARPA increased the maximum CTC — for 2021 only — to $3,600 for children under age 6 and $3,000 per child for children ages 6 to 17, provided their parents’ income is below a certain threshold.
The maximum amount of qualifying expenses considered for a family with one qualifying child has increased from $3,000 to $8,000. The top credit percentage has risen from 35% to 50%. Thus, a family with two qualifying children with childcare expenses could receive as much as $8,000 as a refundable credit in 2021.
The credit will phase out based on the following:
- For AGI of more than $125,000, regardless of filing status, the credit rate is reduced by 1% for every $2,000 over $125,000, but not below 20%. Thus, the credit is reduced to 20% at AGI of $185,000.
- For AGI between $185,000 and $400,000, the credit remains at 20%.
- For AGI over $400,000, the credit phases out at the same 1% per $2,000. Thus, the credit is fully phased out at $440,000.
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.
Payments will begin on July 15, 2021, and after that they’ll 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.
Consider Opting Out by Monday, June 28
Credit eligibility will be based on the actual 2021 filing. The credit must be repaid if the advance was more than the taxpayer qualifies for, so some taxpayers may want to opt out. Parents who are near the income eligibility limits may choose to opt out so they can avoid repaying the sum at tax time next year. Parents need to think especially hard if they are getting raises this year and better-paying jobs that may knock them out of income eligibility, and in turn would have to repay the advance payments on their 2021 taxes.
New IRS Tools
The IRS launched two new online tools related to the advance child tax credit payments.
- A non-filer tool. If taxpayers have not already used one of the stimulus check non-filer tools, they can use this to provide the necessary information to receive the advance payments.
- An opt out tool. If taxpayers do not want to receive advance payments, use this tool to unenroll from the program. To avoid receiving the first advance payment, you must unenroll from the program by June 28, 2021.
Note: During the opt-out process, you must be able to scan in your driver’s license and be on a device with a camera. We recommend using a phone rather than a laptop. Also, if you are married filing jointly, both taxpayers must opt out, or you will receive half of the advance payment.
June 28 is the deadline to skip the July 15 payment, the IRS says. August 2 is the deadline to skip the August 13 payment, and August 30 is the last day to skip the September 15 payment. For now, someone cannot opt back into receiving the money after they have opted out. The ability to re-enroll will start in late September, according to the IRS.
For more information, refer to the IRS’s website pages:
- 2021 Child Tax Credit and Advance Child Tax Credit Payments Frequently Asked Questions
- 2021 Child Tax Credit and Advance Child Tax Credit Payments: Resources and Guidance