There has been a lot of news coverage regarding the new Advanced Child Tax Credit, but for many there are still some unanswered questions. Who is eligible? Who should opt out? Hopefully, this article will answer many of your questions.
Every year, eligible taxpayers can receive a Child Tax Credit (CTC) when they file their tax return. The Child Tax Credit is available to taxpayers with a qualifying child (under the age of 17). A qualifying child can be your son, daughter, stepchild, eligible foster child, sister, brother, stepbrother/sister, or a descendant (like a grandchild, niece, or nephew). You must provide more than half their support, provide their main home in the United States for more than half the year, they do not file a joint return with their spouse, and you properly claim them as your dependent. For qualifying children between the ages of 6 and 17 the credit is up to $3,000. For qualifying children under the age of 6 the credit can be up to $3,600. Since these payments represent half of the estimated credit, the payments could be as much as $300 per month for each child under the age of 6, and up to $250 per month for each child aged 6 and above.
The maximum credit is available for taxpayers with modified adjusted gross income of:
- $75,000 or less for single filers and married filing separately
- $112,500 for heads of household, and
- $150,000 for married filing jointly and qualifying widows/widowers
Once your income exceeds these amounts you will be subject to a partial phase out of the credit. For married filing a joint return the credit is totally phased out once your modified adjusted gross income exceeds $400,000, and for all other filers at $200,000.
This year, the Advanced Child Tax Credit is an advance payment for your 2021 Child Tax Credit. These payments started going out in July of 2021 and will continue until December of 2021. The payment is equal to half of your 2021 estimated child tax credit.
Unlike the earned income credit, you do not have to have income in order to be eligible. You just need to have a qualifying child and meet the requirements.
The advance payment amounts are estimated based on your 2020 tax return, or if you have not filed yet, your 2019 tax return. So, if your dependents will change on the 2021 tax return (perhaps you and your ex-spouse alternate years), or you anticipate an increase in modified adjusted gross income, then you may want to opt out. If you receive these payments, and the actual credit on the 2021 tax return is lower, then you will owe back these payments. That means a reduction of your refund or even a balance due with the IRS.
For those that do not file a tax return, you can log onto www.irs.gov, click on “Manager Your Child Tax Credit Payments” and enroll in the program. For those that want to un-enroll, you may also want to visit the website and log onto the Child Tax Credit Update Portal. For more information you can also read the IRS Publication 5549. At the time of this article these advance payments only apply to tax year 2021. This was a temporary expansion of the credit. Until Congress acts, these advance payments will not be around in 2022.