The Advance Child Tax Credit Explained

Eligible parents will automatically begin receiving advance Child Tax Credit payments from the federal government on July 15th, 2021. It is important taxpayers know the requirements and the implications of this credit. There are options to opt-out of the payments for those who do not want to claim the credit. Read below to learn more and decide if it makes sense for you.

The Advance Child Tax Credit Explained

The Advance Child Tax Credit allows eligible taxpayers to receive 50 percent of their credit in equal monthly installments starting in July 2021. The remaining 50 percent will be applied on their 2021 taxes after they file next year.

It works this way: A child aged 6 years or younger may qualify for a $3,600 annual tax credit so the parent or caregiver may receive a monthly payment of up to $300 per month between July 2021 and December 2021. Children between the ages of 6 and 17 qualify for an annual credit of $3,000, or up to $250 per month.

To be eligible for the advance payment, the taxpayer must (1) have claimed the Child Tax Credit on their 2019 or 2020 tax return, (2) be a U.S. resident residing in the U.S. for at least six months of the year, and (3) meet certain income limits. The advance credit is phased out or eliminated completely for taxpayers whose AGI is above:

  • $150,000 for married taxpayers filing jointly and qualifying widows or widowers;
  • $112,500 if filing as head of household; or
  • $75,000 for single filers or married taxpayers filing separately.

If you receive a total amount of advance Child Tax Credit payments that exceeds the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay to the IRS some or all of that excess payment if you do not qualify for full repayment protection.

The IRS will make the advance payments automatically in July, August, September, October, November and December. You will be automatically enrolled.

Why opt out of advance payment of the child tax credit?

Opting out of receiving the advance payment of the credit may make sense for taxpayers who are near the income-eligibility limits, project to owe taxes with their 2021 tax return, or making 2021 estimated income tax payments.

Opting out may prevent the underpayment of 2021 taxes.

Taxpayers who do not wish to receive advance payments can opt out by using the Child Tax Credit Update Portal on the IRS website and clicking Unenroll from Advance Payments.

Parents have until 11:59 p.m. ET on the below deadlines to unenroll from the payments. August 30th is the next deadline to opt-out for the second payment, which is currently scheduled for September 15th , 2021. See below for future unenrollment dates.

Currently, taxpayers cannot opt back into receiving the money after they have opted out.

Child Tax Credit Payment Unenrollment Dates

 

The specific rules relating to this credit are complex, so be sure to consult your Nisivoccia tax professional to discuss your specific situation.
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