Dear clients and friends,
The American Rescue Plan Act (ARPA), signed March 11, included a provision to revise and expand the existing Child Tax Credit (CTC) for the 2021 tax year, and pay out part of the credit in the form of monthly advance payments starting July 15. There is an option to unenroll from receiving the advance payments and the deadline to unenroll for the July payment is June 28.
The CTC was previously a $2,000 credit that was partially refundable up to $1,400 per qualifying dependent under the age of 17. Due to the ARPA changes, the credit is now fully refundable and has been increased to $3,600 for dependents under the age of six and $3,000 for dependents ages six to 17. You can take full advantage of the credit if your modified Adjusted Gross Income (AGI) is less than:
- $75,000 for single or married filing separate filers
- $150,000 for married filing jointly filers or qualifying widowers
- $112,500 for head of household filers
The credit will be phased down to $2,000 per qualifying dependent for taxpayers who have modified AGI over $150,000 for married filing jointly filers, $75,000 for single or married filing separate filers, or $112,500 for head of household filers. The remaining $2,000 credit will be phased out when modified AGI goes over $400,000 for married filing joint filers and $200,000 for all other filers.Half of your eligible CTC may be received in advance monthly payments beginning July 15, 2021. Taxpayers who will receive the advance payments will receive a letter from the IRS that includes the monthly amount of their payments based on their most recently filed tax return.
Effects of the Child Tax Credit
The CTC is a tax credit, not a stimulus or a rebate. The advance payments will affect your refund or amount due when you file your 2021 tax return. You may also be required to pay back any advance payments greater than the allowed credit that you receive.
If you have income from sources other than a W-2 and have children under the age of 18, you may need to begin making or increase your quarterly estimates to offset the amount of the credit that you are receiving in advance.
You will have the option to opt out of the advance payments. You may want to opt out if you/your:
- Are divorced/separated
- Qualifying dependent is covered by a custody agreement
- Have income from sources other than a W-2
- Are a foster parent
- Prefer to receive a larger refund when filing your tax return
- 2021 modified AGI is greater than $40,000 for single filers or $60,000 for married filing jointly filers
- 2021 modified AGI is significantly higher than your 2020 modified AGI
Unenroll on the IRS’s Child Tax Credit Update Portal
If you decide that you do not want to receive the advance CTC payments, you will have to log onto the Child Tax Credit Update Portal (https://www.irs.gov/credits-deductions/child-tax-credit-update-portal) to opt out of receiving the payments. Each spouse will have to unenroll from the advance payments. The process should take 15-20 minutes, and requires you to have a personal email address, photo ID, camera phone, and computer with a webcam available.
You may unenroll any time prior to December. To stop payments, you must unenroll three days before the first Thursday of the next month by 11:59 Eastern time. For example, the deadline to unenroll and not receive the July 15 payment is 10:59 Central time on Monday June 28.
Please contact us if you have any questions.
Van Bruggen & Vande Vegte, PC