Beginning July 15, all eligible households will start receiving the advanced Child Tax Credit payments every month through December of this year. These payments represent 50% of the estimated Child Tax Credit you may claim on your 2021 income tax return. Eligibility for these payments is based on your 2020 tax filing information (2019 information if 2020 information is not available).
You can take full advantage of the credit if your income (specifically, modified adjusted gross income) is less than $75,000 for single filers, $150,000 for married filing jointly filers and $112,500 for head of household filers. The credit begins to phase out above those thresholds.
Eligible taxpayers don’t have to take any action to receive the refundable tax credit payments on the 15th of each month.
Since the credit is normally part of your tax return and reduces your tax liability, those who accept the advance payments will likely receive a smaller than normal tax refund or larger than normal balance due. This is especially likely if your household income in 2021 is higher than in previous years.
Taxpayers may choose to opt-out and receive the benefit as a lump sum on their 2021 tax return.
To opt-out, the you must complete the unenrollment form available via the Child Tax Credit Update Portal on the IRS website (the same portal can be used to manage how the client receives the payments). For married couples, each spouse is required to complete a form (otherwise, the spouse who doesn’t opt-out will receive half the available amount).
The first opt-out deadline was June 28. To opt out of the next month’s advance payment, taxpayers must unenroll at least 3 days before the first Thursday of the month. The opt-out deadline for the August advance payment is August 2, 2021.
Written By Leah Swenson, DHA CPAs