The credit is $3,000 for each child age 6 to 17 and an additional $600 is added per child 5 years-old and under. Instead of receiving the tax credit when filing your 2021 taxes, the IRS is paying half of the credit in the form of six monthly installments, starting on July 15.
- The new qualifying age of children is 17. In prior years, this has been 16.
- It is available regardless of a family’s income (prior rules required parents to have at least $2,500 of earned income). It is also fully tax refundable (before, the refundable amount was capped at $1,400).
- Changes will last for one year. As of now it is unclear whether this change will be permanent.
- July 15, 2021
- August 13, 2021
- September 15, 2021
- October 15, 2021
- November 15, 2021
- December 15, 2021
- Be a U.S. Resident
- Have a 2019 or 2020 tax return, or have signed up for the Economic Impact Payment (stimulus check) during the COVID-19 pandemic.
- Have a qualifying child under the age of 18 as of December 31, 2021. This includes children born on or prior to December 31, 2021.
- Make less than $75,000 per year (or $112,500 for heads of household, or $150,000 for married couples filing jointly).
It is important to know that you do not have to accept the advance monthly payments. The credit is estimated using your most recent tax return; however it is truly based on your 2021 return. If you have any changes to your 2021 tax return you could potentially be required to pay the money back. For example, if you claim a child on your 2020 tax return, then receive the prepayment of the child tax credit but you do not claim the child on your 2021 return, you will need to pay the credit back on your return. You can choose to opt-out of the advanced payments and wait to use the credit at tax-time. If you would like to opt out of the advance payments, or you need to update your information, you must use the Child Tax Credit Update Portal.
The key for clients is to understand how the credit works and to make an informed decision whether to take the advanced payment or wait to get the credit on your 2021 return. We encourage clients to visit with their tax professional for estimates on 2021 income. Our team is happy to work with you and your tax professional to plan potential strategies to make use of the advance payments or reduce taxable income if you are nearing income limits for 2021.
This article is for information purposes only. We are not a tax-advisor company. There may be additional guidelines and information regarding your personal tax situation not included in this article that you will need to consult with your tax professional about.