The American Rescue Plan (ARP), which was signed into law by President Joe Biden on March 11, 2021, included important changes to the Child Tax Credit.
The ARP increased the 2021 Child Tax Credit from $2,000 per child to $3,000 per child ages 6-17, and to $3,600 for children under the age of 6. Taxpayers with adjusted gross income of less than $150,000 ($75,000 for individuals) are fully eligible for the credit, with credit phaseouts if income exceeds those thresholds.
In addition, the ARP allowed the Internal Revenue Service to deliver half of the expected credit to eligible families beginning in July. The advanced payments will be up to $250 per month for each child between 6-17, and $300 per month for each child under 6. Advanced payments will be paid through December, with the remainder of the credit being claimed or refunded when 2021 tax returns are filed in 2022.
While the increase of the Child Tax Credit is a major benefit, advancing the payments may be a concern for some families. For one, many Americans budget for one large tax refund rather than smaller amounts each month. Another major concern that comes with advancing the payments is on the tax compliance side. People may not remember how much they received in advance and, therefore, may not factor in what was already received when filing their 2021 tax return or paying quarterly estimated tax payments. This, in turn, could result in tax adjustment notices and even penalty assessments for errors on the taxpayers’ return. Additionally, many taxpayers who will not be eligible to claim the Child Tax Credit on their 2021 income tax returns (due to income limitations) are receiving the advanced payments.
Fortunately, the IRS has given taxpayers an option to opt out of receiving the advanced payments. This can be done at the following IRS website:
https://www.irs.gov/credits-deductions/child-tax-credit-update-portal
Even if the first advanced payment was received in July, taxpayers can opt out of receiving any remaining payments through the end of the year.
As of now, there are no plans for the expanded credit or the advanced payments to continue after 2021. We will continue to provide more information on the advanced Child Tax Credit as it becomes available
