If your modified adjusted gross income (MAGI) is less than $150,000 for married filing jointly (MFJ) and you reported children under the age of 17 on your 2020 tax return, you should be seeing monthly checks from the IRS rolling in from July through December as part of the advance Child Tax Credit.
The American Rescue Plan, passed in March 2021, increased the Child Tax Credit for 2021 and created a plan for monthly advance payments of up to half of the credit, with the balance appearing on the 2021 tax return. The plan increased the Child Tax Credit from $2,000 to $3,000 per child for children ages six through 17 and $3,600 for children younger than six years old. The credit phases out, reducing the Child Tax Credit by $50 for each $1,000 by which your MAGI exceeds the $150,000 income threshold. The Child Tax Credit won’t begin to be reduced below $2,000 per child until your MAGI in 2021 exceeds $400,000 for MFJ or $200,000 for all other filing statuses.
Regardless of your phaseout level, if you qualify for the Child Tax Credit, the IRS is advancing part of the credit to you in monthly increments, sending the payments by direct deposit to the account information they have on file, or by check if you do not have direct deposit set up.
If you had a “Covid baby”—one born in 2021—that child qualifies for the advance payments. However, at this time, you cannot update the IRS with how many children you have.
The IRS has two online tools: 1. The Non-filer Sign-up tool, allowing low-income families who do not file a tax return to sign up for the advance payments. 2. The Child Tax Credit Update Portal, which allows families to update their direct deposit information or opt out of the advance payment. The IRS plans to include the feature at the end of September to allow taxpayers to change the number of dependents. Taxpayers who add a child in September should only receive the advance payments for October through December. The remaining Child Tax Credit can be claimed on the 2021 tax return.
Qualifying children include a son, daughter, adopted child, foster child, brother, sister, step-sibling, or a descendant of any of them—grandchild, niece, nephew—who has lived with you for more than half of the year and that you can claim as a dependent.
The Child Tax Credit Update Portal also allows taxpayers to opt out of the advance payments. I know—why would anyone opt out? Some taxpayers may have increased income for 2021 or other items on their return that result in them owing taxes. By opting out of the advance payments, the full credit can be claimed on their 2021 tax return and may help offset what they owe when their return is prepared. Ideally, you want to owe as little as possible or receive as little of a refund as possible—paying in only what you owe. This keeps your money in your pocket, rather than giving the government an interest-free loan or owing underpayment penalties.
If you have questions on claiming the Child Tax Credit or receiving the advance payments, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166