2021 Tax Update: Advance Child Tax Credit

There are important changes to the Child Tax Credit starting this summer.

From July 15, 2021 through December 31, 2021, the IRS is paying half the total Child Tax Credit amount in advance monthly payments. You will claim the other half when you file your 2021 income tax return. These changes apply to tax year 2021 only.

To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:
• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
• Provided the IRS with your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
• A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
• Made less than certain income limits.

While the advanced Child Tax Credit may add relief now, it may surprise you when you prepare your tax return by next April 2022. Since the credit is based on the 2020 tax year, you may have to owe some of the tax credit back. For example, if you have a child who turns turn 6 or 18 in 2021, you will qualify for a lesser tax credit in the case of the child turning 6, or no credit if he or she turns 18. Household income might also increase this year relative to last year, making you ineligible for the payments, or eligible for a lesser amount. The payments start to phase out for individuals earning an adjusted gross income over $75,000, and married taxpayers (and widows/widowers) filing jointly earning over $150,000.

Taxpayers who receive more money than they are eligible for will report the excess amount on their 2021 tax return as additional income tax, reducing their tax refund or increasing how much they owe the IRS.

To avoid repaying the credit, you can update your personal information, including changes in the number of qualifying children you have, income and filing status. You can do this with the IRS through the agency’s Child Tax Credit Update Portal. These changes are made available throughout the rest of 2021.

You can also completely opt out using the portal. For those who are married and filing jointly, both spouses must un-enroll. Below is the schedule of the last day to un-enroll each month.

If you do not opt out, the IRS will send a form in January 2022 detailing how much was disbursed to you during 2021. Please keep this form and provide it to us when we prepare your tax return.