The Child Tax Credit will be expanded considerably for 2021 to help low- and middle-income taxpayers (many of the same individuals who were eligible for stimulus checks). The amount of the credit will increase from the current $2,000 (for children under 17) to $3,000 per eligible child ($3,600 for a child under age six). The $3,000 credit will also be available for children that are 17 years old. The increase in the maximum amount will phase out for heads of households earning $112,500 ($150,000 for couples).
Because the enhanced Child Tax Credit will be fully refundable, eligible taxpayers will receive a check for any credit amount not used to offset the individual’s federal income tax liability. In addition, part of the credit will be paid in advance by the IRS so that taxpayers do not have to wait until they file their tax returns for 2021.
The Advance Child Tax Credit payments are calculated based on the taxpayer’s 2020 tax return or 2019 tax return if the former is unavailable to them. The payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. These payments will largely be made through direct deposit on July 15, August 13, September 15, October 15, November 15, and December 15.
Taxpayers need to be aware that these advanced payments may have to be repaid if they do not qualify for the credit when they file their 2021 1040 Individual Income Tax Return. There are protections built into the law for some taxpayers, but you should review the following rules to avoid an unpleasant surprise on April 15, 2022.
Rule 1: You qualify for full repayment protection and won’t need to repay any excess amount if your main home was in the United States for more than half of 2021 and your modified adjusted gross income (AGI) for 2021 is at or below the following amount based on the filing status on your 2021 tax return:
- $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
- $50,000 if you are filing as head of household; and
- $40,000 if you are a single filer or are married and filing a separate return.
Your repayment protection may be limited if your modified AGI exceeds these amounts or your main home was not in the United States for more than half of 2021.
Rule 2: If your modified AGI is at or above the amounts listed below based on the filing status on your 2021 tax return, you will not qualify for any repayment protection as provided by the law:
- $120,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
- $100,000 if you are filing as head of household; and
- $80,000 if you are a single filer or are married and filing a separate return.
For purposes of the Child Tax Credit and advance Child Tax Credit payments, your modified AGI is your adjusted gross income (from the 2020 IRS Form 1040, line 11, or the 2019 IRS Form 1040, line 8b), plus the following amounts that may apply to you.
- Any amount on line 45 or line 50 of the 2020 or 2019 IRS Form 2555, Foreign Earned Income.
- Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa.
If you do not have any of the above, your modified AGI is the same as your AGI.
If you qualify for repayment protection, the amount of your tax liability from excess advance Child Tax Credit payments is reduced by up to the full repayment protection amount. The full repayment protection amount equals $2,000 multiplied by the following:
- The number of qualifying children that the IRS took into account in determining the IRS’s initial estimate of your advance Child Tax Credit payments, minus
- The number of qualifying children properly taken into account in determining the allowed Child Tax Credit amount on your 2021 tax return
Repayment Protection Example:
You filed a joint return with your spouse for the tax year 2020 and properly claimed the Child Tax Credit for three qualifying children. The IRS estimated your total advance Child Tax Credit payment amount based on these qualifying children. However, when you file your 2021 joint tax return with a modified AGI of $75,000, you claim the Child Tax Credit for only one qualifying child – and therefore have two excess qualifying children. Your modified AGI of $75,000 exceeds your applicable $60,000 modified AGI threshold by 25 percent. As a result, your potential full repayment protection amount of $4,000 (that is, $2,000 for each excess qualifying child) is reduced by 25 percent to $3,000.
Taxpayers can opt out of the advanced payments at any time. Payments scheduled after opting out will stop and the amounts owed to you or by you will be calculated when your 2021 1040 tax return is prepared.
How to opt-out of the child tax credit monthly payments:
Important note - if you do not have an existing IRS username or ID.me account, you will need to have your photo identification.
- Visit the Child Tax Credit Update Portal.
- Click the Manage Advance Payments button.
- Sign in using your IRS or ID.me account. If you don’t have an ID.me account or IRS username, click Create an account and follow the instructions.
- On the next page, you can see your eligibility and unenroll from the monthly payments.
For questions or assistance, please complete the form below or call 717-569-2900.
