Advance Child Tax Credit Payments
The IRS announced that the 2021 advance child tax credit (CTC) payments, created under the American Rescue Plan Act (ARPA), will begin being made on July 15, 2021. According to the IRS, about 39 million households covering 88% of children in the U.S. “are slated to begin receiving monthly payments without any further action required.” Eligible parents will soon begin receiving payments from the federal government.
The ARPA temporarily expanded and made CTCs refundable for 2021. The law increased the maximum CTC, for 2021 only, to $3,600 for each qualifying child under age six and $3,000 per child for those ages 6 to 17, provided their parents’ income is below a certain threshold.
Eligible families will receive up to $300 monthly for each child under six and up to $250 monthly for each child six and older. The increased credit amount will be reduced or phased out for households with modified adjusted gross income above the following thresholds:
- $150,000 for married taxpayers filing jointly and qualifying widows and widowers;
- $112,500 for heads of household; and
- $75,000 for other taxpayers.
Under the previous law, the maximum annual CTC for 2018 through 2025 was $2,000 per qualifying child, the income thresholds were higher, and some of the qualification rules were different.
For 2021, a “qualifying child” is defined as one who is under age 18 and who the taxpayer can claim as a dependent. That means a child related to the taxpayer who, generally, lived with the taxpayer for at least six months during the year. The child also must be a U.S. citizen or national or a U.S. resident.
Under the ARPA, the IRS is required to establish a program to make periodic advance payments which in total equal 50% of IRS’s estimate of the eligible taxpayer’s 2021 CTCs, during the period July 2021 through December 2021. The payments will begin on July 15, 2021. After that, they’ll be made on the 15th of each month unless the 15th falls on a weekend or holiday. Parents will receive the monthly payments through direct deposit, paper check or debit card.
If your income is too high to receive the increased advance CTC payments, you may still qualify to claim the $2,000 CTC on your tax return for 2021.
Please contact us if you have questions about the advance child tax credit.