Understanding the 2021 Child Tax Credit
The 2021 Child Tax Credit in President Biden’s American Rescue Plan provides the largest Child Tax Credit ever and historic relief to families struggling financially amidst the pandemic. If you qualify for the 2021 child tax credit, you may have already received your first advance monthly payment on or around July 15, 2021. Before you spend these funds, it’s important to understand what the tax credit is and how the monthly advance payments work. The following are answers to common questions and links to resources, but this is not tax advice. For tax guidance, always check with a CPA.
What are the advance monthly payments?
Half of the tax credit which would typically be claimed on your 2021 income tax return will be sent in monthly advance payments of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above; the other half can be claimed when you file your 2021 income tax return. Monthly payments will occur from July to December 2021. Depending on your situation, you may be eligible to receive up to $3,600 total per qualifying child. Payments will be distributed based on how you elected to receive your 2020 tax refund. So if you received your refund via direct deposit, you can expect to receive advance payments the same way.
Who is eligible for advance Child Tax Credit Payments?
To qualify for advance payments of the Child Tax Credit, an individual— and their spouse, if they filed a joint return — must have:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
- Given the IRS information about their qualifying children in the Non-Filers: Enter Payment Info Here tool (to get their Economic Impact Payment) in 2020 or use the new Child Tax Credit Non-Filer Sign-Up Tool; and
- A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
- Made less than certain income limits.
The IRS will use information you provided earlier to determine if you qualify and automatically enroll you for advance payments. You will automatically receive advance payments unless you unenroll.
Why would someone want to unenroll from receiving monthly payments?
- They prefer to receive the full amount of their refund all at once when they file their 2021 tax return (which they file in 2022). The credit is being paid in advance, so every dollar received will reduce the amount of Child Tax Credit claimed on a filers’ 2021 tax return. This means that by accepting advance child tax credit payments, the amount of their refund may be reduced or the amount of tax owed may increase.
- They are concerned about receiving an overpayment based on old tax information. This could happen if household income has gone up because they have had a pay increase, returned to work or started a new job. It could also happen if a dependent they claimed previously is aging out of an age bracket before the end of 2021.
- If they share custody or alternate who claims children on their taxes each year, unenrolling can ensure that the credit is assigned to the correct guardian.
- Families that live outside of the U.S. for more than half of 2021 should unenroll from the monthly payments, according to the IRS.
To unenroll from monthly payments, visit Child Tax Credit Update Portal and click the Manage Advance Payments button.