The "Need To Know" On Advanced Child Tax Credit Payments

Starting this week, another form of government stimulus starts for families with children who fall below certain income thresholds. Enacted through the American Rescue Plan Act (March 11), the child tax credit has been enhanced to support families, and instead of waiting until “tax time” to receive this dollar for dollar tax bill credit, the IRS is sending advanced payments over the next 6 months.

Here are some of the details to help clarify what’s new and who is eligible.

1. The legislation increased the amount of the credit for 2021 for families under certain income thresholds (see below). The tax credit was $2,000/child before this legislation increased it to $3,600 for children under 6 and $3,000 per child between the ages of 6 and 17.
   • NOTE: There’s a big difference between a “tax deduction” and a “tax credit.” A tax credit directly reduces the amount of tax you owe dollar for dollar, whereas a deduction only reduces your taxable income, which has a more marginal affect. Hence, tax credits are generally considered to be more impactful.
2. It’s fully refundable, which means that people can get it, even if they don’t owe any federal income taxes. BUT that verbiage could be confused with the repayment rule which means if you’re given money and don’t qualify, you WILL have to pay it back. This is unlike other recent government stimulus where overpayment was forgiven. If you know you won’t qualify based on the income thresholds or based on your filing status (think situations of divorce based on which parent claims which child) then you are encouraged to go to the irs.gov website to opt out of the advanced payments. If you don’t, repayment will be required when you file your next return.
3. The IRS is going to make advanced payments of this tax credit. You may receive half of the Child Tax Credit for each child in equal payments each month for the remainder of 2021, starting on July 15th.
   • For each qualifying child under age 6, you will receive up to $1,800 in advance, generally paid in six monthly payments of $300.
   • For each qualifying child age 6 through 17, you will receive up to $1,500 in advance, generally paid in six monthly payments of $250.
4. These advance payment amounts begin to be reduced if your modified AGI exceeds:
   • $150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
   • $112,500 if filing as head of household; or
   • $75,000 if you are a single filer or are married and filing a separate return.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
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