In 2021, Congress agreed to expand the Child Tax Credit (CTC) through the American Rescue Plan Act. For this year only (so far), the Child Tax Credit will be significantly larger than it has been in years past for people who make below a certain income level. Even more beneficial, there will be advance payments made to families who qualify for the credit starting July 15. This guide answers all your questions about the Advance Child Tax Credit based on the latest information from the IRS.
If you’re worried about receiving the advances on time and how this will work, you’re not alone. Even though there’s little more than a month left before the advance payments are set to start, the IRS has released very little information about the credit. And at least to date, the portals that they’ve promised where parents can handle issues and track payments are not available yet.
With that in mind, we talked to Clare Herceg, founder of Let’s Get Set—a fintech company dedicated to helping families ensure they get the most out of available tax credits each year when they file taxes. It’s a service that’s more crucial than ever now for changes like this to the Child Tax Credit.
Here’s how Clare summarizes the changes to the child tax credit:
“In a nutshell, the credit was expanded in size from $2,000 to $3,000-$3,600, and half of the credit can be accessed in 2021 via monthly payments. Notably, unlike the old credit, this one is fully refundable which means parents can access it even if they don’t have any income or don’t owe taxes.”EXPERT: Clare Herceg, Let's Get Set
Click on the questions below for details on Child Tax Credit and what it will mean for you in your specific financial situation.
Q:How much is the child tax credit for 2021?
- Families will receive $3,000 for each dependent age 6 to 17
- The credit is $3,600 for each dependent under age 6
The standard Child Tax Credit is $2,000 for any dependent under age 17. So, this increases the credit by at least $1,000 or more, depending on the age of the child. It also allows for families to receive advance payments for six months starting in July
Q:Who qualifies for the child tax credit?
Qualifying for the Child Tax Credit depends on two things:
- Your modified adjusted gross income (the income you claim on your taxes)
- Whether you have a qualifying child dependent
For the basic CTC, your adjusted gross income must be below $400,000 if you are married filing jointly or below $200,000 for all other filing statuses. However, to receive the expanded CTC and get advance payments this year, the income limits are lower.
“Parents at the lowest income thresholds receive the full value of the credit,” Herceg explains.
The expanded CTC will be phased out if your income is above these limits:
|Filing status||Income limit|
|Married filing jointly||$150,000|
|Head of household||$112,500|
|All other filing statues||$75,000|
Thus, if you are married filing jointly and make $175,000 annually, you can claim the standard child tax credit ($2,000) next year when you file your taxes. However, you will not get the expanded payment and you will not receive advance payments this year.
Q:What is the advance child tax credit?
So, for instance, let’s say you are a single parent who makes $75,000 per year and has two children, age 5 and 15. Your total child tax credit for 2021 would be $6,600—that’s $3,000 for the older child and $3,600 for the younger one.
Since the IRS allows you to advance up to 50% of your CTC for the year, you would be able to advance $3,300. Spread out over the six months of payments, you would receive $550 per month.
Q:How will the IRS determine who is eligible?
“If parents filed a 2020 tax return, then the payments should be automatic,” Herceg says. “Filing a 2020 tax return is the best way to make sure the IRS has the most up-to-date information and to get set up to receive those credits.”
“We strongly encourage families to file their 2020 taxes using free tax prep because many families don’t realize that they actually are eligible for credits or may be eligible to get back money they’ve prepaid in taxes. We estimate that parents leave $12B in unclaimed credits on the table each year by not filing or filing to claim credits like the Earned Income Tax Credit.”
As the IRS states on their website, “The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the CTC as well as any other tax credits they’re eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.”
If you do not file normally file taxes because you receive federal benefits, such as SSI or SSDI, or because you do not make enough money, the IRS may provide a tool that you can use as a non-filer. They did this last year for the first and second stimulus payments. However, information on that tool is not yet available.
Q:How will the IRS send out advance child tax credit payments?
Direct deposit is the fastest method that you can receive these types of payments, which is why the IRS is encouraging people to file their taxes electronically and set up direct deposit. You may receive your payment on the same day they begin to disburse them.
If you do not set up direct deposit, then you would receive your advance payments by mail. The most likely way would be that the IRS will issue you a debit card with the payment. This is how most mailed stimulus payments were handled. Recipients received an EIP card (economic impact payment card) that had their stimulus funds loaded on the card.
Q:What do I have to do to receive advance child tax credit payments?
If you filed your 2020 return electronically and used direct deposit for your refund, then your payments should arrive on or just after July 15, 2021.
If you have not filed your 2020 tax returns, then this the step that the IRS is encouraging you to take. Even if you don’t traditionally file taxes, you may want to file this year to ensure you receive your advance payments.
Q:Can I opt-out of receiving advance child tax credit payments?
Q:What if my child tax credit or direct deposit information changes?
However, currently, the IRS has provided no information on how parents can update their information. Most experts predict that there will be a portal set up online that will allow parents to make changes to their information. But as of the publication date of this article, the IRS has not released any information about such a portal.
Q:Which parent will receive the advance child tax credit payments?
If you are co-parenting, only the parent that claims the child as a dependent would receive any advance payment.
Q:Can I receive advance payments if the child is adopted?
Q:What are the criteria for determining a qualifying child?
- The child must be your son, daughter, stepchild, foster child, grandchild, niece, or nephew.
- They must be age 17 or younger in 2021; for the $3,600 CTC, the child must be under age 6 in 2021.
- The child did not provide more than half his or her own support in 2021.
- They lived with you for more than half of 2021.
- You will claim them as a dependent on your 2021 tax returns.
- The child doesn’t file a joint tax return.
- They are a U.S. citizen, national or resident alien.
- The child has a valid Social Security number.
Q:Can my advance child tax credit payments be garnished?
- The payments will not be garnished for back child support, back taxes, or other Federal or state debts.
- They can be garnished by private debt collectors, so if you have a garnishment order in place, you may see your payments garnished.
Q:Can I claim the child tax credit if I don’t make any income?
So, even if you didn’t make any income in 2020, you could still file your 2020 tax returns to receive this credit and the advances.
The IRS is Sending Letters to 36 Million Eligible Parents
On June 76, the IRS announced that it would begin sending letters to 36 million parents who are eligible to receive the advance payments.
They’ve used three methods to determine the eligibility for those 36 million families:
- 2020 tax return filings
- 2019 tax return filings if your 2020 has not yet been filed
- Any parent that used the IRS non-filer’s tool last year to claim stimulus payments
The IRS has also set up a page on their website where they will add information as it becomes available. Parents will be able to use the portals to determine if they qualify for payments, to opt out of advances, and to update their information.
Unfortunately, Advanced Child Tax Credit Delays May be Inevtiable
Given the lack of information available, roughly a month before advance payments are set to begin, delays may be inevitable. But for parents who need that money to stay afloat in wake of the pandemic, delays can be extremely costly. Many families have already dealt with the frustration of waiting for their third stimulus.
“The IRS has a lot on their plate right now and is still working hard to process 2020 tax returns and Economic Impact Payments,” Herceg says. “So, I would anticipate delays especially for those people who haven’t yet filed their 2020 returns or haven’t yet received their refund checks, and those who will need to update the information they have on file with the IRS via the portal.”
If you’ve filed your 2020 tax returns, then you are in the best position possible to ensure you receive your first CTC advance properly. But even so, you need to stay on top of information as it becomes available. Herceg’s organization Let’s Get Set allows you to sign up to receive updates.
Article last modified on June 7, 2021. Published by Debt.com, LLC