Child Care Credit Advance Payments Begin July 15: What You Need to Know and When to Opt-Out

Jun 27, 2021 | Coronavirus Updates, Coronavirus Updates, Personal Financial Planning, Tax News

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 for certain taxpayers
  • Is fully refundable (meaning you can receive it even if you don’t owe the IRS)
  • May be partially received in monthly payments

The new law also raised the age of qualifying children to 17 from 16, meaning some families will be able to take advantage of the credit longer.

The IRS will pay half the total credit amount in advance monthly payments, and you claim the other half when you file your 2021 income tax return. The first of the six payments is scheduled for July 15, with additional payments to follow on August 13, September 15, October 15, November 15 and December 15. If you’re eligible based on your 2019 or 2020 tax return, the IRS will automatically send you the payments unless you unenroll from the advance payments.

Though these tax changes are temporary and only apply to the 2021 tax year, they may present important cashflow 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 claimed on your income tax return and reduces your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your return.

Qualifications and how much to expect
The child tax credit and advance payments are based on several factors, including the age of your children and your income.
  • The credit for children ages five and younger is up to $3,600 –– with up to $300 received in monthly payments.
  • The credit for children ages six to 17 is up to $3,000 –– with up to $250 received in monthly payments.

To qualify for the child tax credit monthly payments, you (and your spouse if you file a joint tax return) must have:

  • Filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS your information using the non-filer tool
  • A main home in the U.S. for more than half the year or file a joint return with a spouse who has a main home in the U.S. for more than half the year
  • A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number
  • Income less than certain limits
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 head of household filers. The credit begins to phase out above those thresholds.
Higher-income families (e.g., married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income) will generally get the same credit as prior law (generally $2,000 per qualifying child) but may also choose to receive monthly payments.
Taxpayers generally won’t need to do anything to receive any advance payments as the IRS will use the information it has on file to start issuing the payments.

IRS’s child tax credit update 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 amount, such as filing status or number of children. Parents may also use the online portal to elect out of the advance payments or check on the status of payments.
The IRS also has a non-filer portal to use for certain situations.

Why would you unenroll from the advance payments?
You should unenroll if your income in 2021 is too high to qualify you for the credit, if someone else (an ex-spouse or another family member) qualifies to claim the child as a dependent in 2021, or if your main home was outside the U.S. for more than half of the year. Also, you might prefer to receive the entire Child Tax Credit when you file your 2021 income tax return next year. Parents may use the online portal to elect out of the advance payments. If you choose to unenroll from the monthly payments, you must “unenroll 3 days before the first Thursday of next month by 11:59 p.m. Eastern Time,” the IRS says.

 

  • July: Unenrollment deadline is 6/28/2021, payment date on 7/15/2021
  • August: Unenrollment deadline is 8/2/2021, payment date on 8/13/2021
  • September: Unenrollment deadline is 8/30/2021, payment date on 9/15/2021
  • October: Unenrollment deadline is 10/4/2021, payment date on 10/15/2021
  • November: Unenrollment deadline is 11/1/2021, payment date on 11/15/2021
  • December: Unenrollment deadline is 11/29/2021, payment date on 12/15/2021
The latest updates, including a link to the FAQs, are posted on the IRS website on its Advanced Child Tax Credit Payments in 2021 page.

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. How you choose to receive the credit (partially advanced via monthly payments or solely on your next year’s return) could have many impacts to your financial plans.

As we have been doing with all coronavirus legislation and IRS and SBA guidance during these past several months, we will be sure to update you with any additional insight as soon as possible. Continue to check back here for the most up to date tax information and changes in response to coronavirus. Click here for all of your coronavirus resources.  If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here. 

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