Important Changes to the Child Tax Credit

Recently, there were changes made to the child tax credit that will benefit many taxpayers. As part of the American Rescue Plan Act that was enacted in March 2021, the child tax credit:

  • Amount has increased.
  • Is fully refundable (meaning, you can receive it even if you don’t owe the IRS).
  • May be partially received in monthly payments.
  • Is available for children up to age 17.

The IRS will pay half the credit in the form of advance monthly payments beginning July 15. Taxpayers will then claim the other half when they file their 2021 income tax return.

When filing the 2021 tax return, the amount of the advanced credit received must be reconciled against the actual eligible amount.  The balance will either be due to the IRS or paid to you.

Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cash flow and financial planning opportunities today. It is also important to note that the monthly advance of the child tax credit is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return. To avoid any surprises, please contact our office.

EXPAT CLIENTS – This credit affects you differently than taxpayers who have their main homes in the United States more than half the year. U.S. Citizens living abroad for more than half the year are not entitled to advanced payments OR a fully refundable child tax credit in 2021.

IRS’s Child Tax Credit Portal
Using the IRS’s Child Tax Credit and Update portal, taxpayers can update their information to reflect any new information that might impact their child tax credit amounts, such as filing status or the number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.

Why would you consider opting out? Opting out of advances payments will allow you to receive the credit on your tax return instead, offsetting your liability due at tax time.

The IRS also has a non-filer portal to use for certain situations.

How Much Can You Expect?
The child tax credit and advance payments are based on several factors, including the age of your children and your income.

  • Children ages 0 – 5 are up to $3,600 – with up to $300 received in monthly payments.
  • Children ages 6 – 17 – with up to $250 received in monthly payments.

Income Limitations
You can take full advantage of the credit if your income (specifically, your modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers, and $112,500 for the head of household filers. The credit begins to phase out above those thresholds.  Learn more here.

Let Us Help You.
With any tax law change, it’s important to revisit your full financial roadmap. We can help you determine how much credit you may be entitled to and whether advance payments are appropriate for your situation. How you choose to receive the credit (partially advanced via monthly payments or solely on your next year’s return) could have many impacts on your financial plans.

Please contact our office today to discuss your specific situation. As always, planning ahead can help you maximize your family’s financial situation and position you for greater success.