What’s Up With The Advanced Child Tax Credit Payment?

By Bobby Hoyt, Contributor

The other day I was scrolling through Facebook and saw someone post about a surprise payment they received from the IRS. They were referring to the first of six Advance Child Tax Credit payments that more than 35 million American families received in July of 2021.

Two parents and a little boy drawing and writing together getty

The payments snuck under the radar for many families, especially if you’re taking a mental health break from the news these days. But what might also surprise you is exactly how the payments work and how they will affect your 2021 taxes. 

If you’re wondering what’s up with the advance child tax credit payment, I’m going to break it all down by answering some frequently asked questions.

What is the advanced child tax credit check?

The Child Tax Credit is part of the American Rescue Plan, a $1.9 trillion coronavirus rescue package designed to facilitate the U.S.’s economic recovery from the Covid-19 pandemic. The advanced child tax credits mean that eligible families will receive monthly payments of $250 for children over the age of six and $300 per child under six. 

Part of these payments is that the American Rescue Plan increases the maximum Child Tax Credit to $3,000 a year for children aged 6 to 17, and $3,600 for children under the age of 6. The six monthly payments you’re seeing right now make up the first half of the credit, with the second half coming after you file your 2021 taxes. 

How is the amount determined?

There are a couple of factors that go into figuring how much you’ll receive per child: your household income and age of children.

Couples making less than $150,000 and single parents (classified as head of household) making less than $112,500 qualify for the full 2021 Child Tax Credit amounts. Payments are phased out by $50 for every $1,000 earned above the threshold.

The age of your children is a consideration because kids under the age of 6 qualify for a monthly payment of $300, compared to the $250 monthly payment for children 6 to 17. Children aged 18 to 24 are left out until you file your 2021 taxes, when you’ll receive a $500 payment for those dependants.

If your child is aging out of those age brackets before the end of the year, know that the amount you receive depends on the age of your child on December 31, 2021. So if you have a 5-year-old turning 6 in November, you’ll receive the $250 monthly payment instead of $300.

What if I’m supposed to get a payment but haven’t gotten one yet?

Even though many families have already received their second advanced child tax credit payment, some still haven’t seen their first payment. 

If you meet the qualifications but haven’t received your payment, here are the steps you can take:

1. Check the Child Tax Credit Update Portal

Aspects of your tax profile may have changed over the past few years, and you should start by making sure this information is up to date. You can log into the Child Tax Credit Update Portal to see if your payments are pending eligibility. If the IRS can’t confirm payments in 2021, you’ll be able to claim the credit when you file your 2021 taxes in 2022.

2. File your tax return or use the IRS’ non-filer tool

The IRS is using your 2019 or 2020 tax return to determine how to send your payment. So if you haven’t received your payment, there’s a good chance the IRS doesn’t have your information on file, or you haven’t registered using the non-filer tool. You can update your address, changed financial information, and bank account information for direct deposit.

3. Request a payment trace

While it’s a less common problem, there are some situations when the IRS has sent your payment but you haven’t received it yet. Then, you can request a payment trace using Form 3911 to initiate the trace.

How will this affect my 2021 tax return?

I know many people are excited to see that payment hit their bank accounts, and it can be a massive help to families who are struggling because of the economic effects of covid-19. However, you need to know what will happen on the other end of your 2021 tax return.

The first thing to remember is that these monthly payments are only half of the credit, with the other half of your credit coming in a lump sum when you file your 2021 tax return. 

Now, if you are making more this year than you have in recent years, you may owe some of the tax credit back. This is because the IRS bases the amount you receive on your 2019 or 2020 tax information, and payments phase out for individuals earning over $75,000 or for couples earning $150,000 annually. 

People whose 2021 exceeds those limits will need to report the excess amount as additional income tax on their 2021 tax return. This tells the IRS that you’ve received an overpayment, and they’ll reduce your tax refund or increase the amount you owe.

You can avoid an overpayment by updating your income and filing status in the Child Tax Credit Update Portal, and you can make changes throughout the rest of 2021.

Can I opt out of the advance child tax credit payments?

Yes! You can definitely opt out, and there are a number of reasons why you might, with the first being that your income has increased since 2020 or 2019 (depending on which tax return was filed most recently). 

Again, if your income is over $75,000 for single filers or more than $150,000 for couples, you will not receive the full credit. Say you started a new job this year that pushes you over those amounts, the IRS is using information from the previous year, and you’ll need to repay the overpayment when you file in 2022.

Another reason to opt out is to reduce your 2021 taxes or increase your tax refund. Because the advance child tax credit is a prepayment for the full 2021 child tax credit, you can opt out of the payments to receive it all in one lump sum payment.

How do I opt out?

You’ll need to opt out as soon as possible if you want to unenroll completely, and you can use the Child Tax Credit Update Portal to unenroll, as well as update bank account information and check enrollment status.

You must opt out of our monthly payments three days before the first Thursday of every month. This gives the IRS time to process your unenrollment. So if you want to opt out of the upcoming October payment, you’ll need to opt out by October 4. 

Below are the payment and opt out dates for the rest of 2021:

  • October: Payment comes October 15; opt out by October 4
  • November: Payment comes November 15; opt out by November 11
  • December: Payment comes December 15; opt out by November 29

Both you and your spouse will need to opt out separately if you file a joint tax return. If you don’t, then the spouse who hasn’t opted out will still receive a partial payment for half of the qualifying amount. 

Will there be advance child tax payments in 2022?

The American Rescue Plan is only temporarily advancing payments to families, but some Democratic lawmakers advocate making it permanent. Treasury Secretary Janet Yellen has even spoken out that it should become permanent. In an NPR interview, Yellen said she believes “this is very important to continue.”

Biden has proposed expanding the Child Tax Credit program until 2025, primarily until the country, and economy specifically, gets back to normal.

What are some smart ways to use the advance child tax?

The payments are meant to help families with everyday expenses, but the reality is that you can use the payments however you see fit. For example, you can use your payment to pay down debt, self-fund an HSA, direct it to a UTMA or UGMA, or put it in a brokerage account. 

Weigh up the pros and cons of keeping your monthly payments and what you can do with that money now versus later to decide what makes sense for you.

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