Child Tax Credit – Advance Monthly Payments Explained

The American Rescue Plan Act signed into law this past March expanded the Child tax credit from $2,000 per child to $3,000 per child ($3,600 for children under 6). In addition, the law allows for ½ of the credit to be paid out monthly. In July the IRS began issuing advance payments of the child tax credit for 2021. They are scheduled to end on December 15^th.  To be eligible for the credit, taxpayers must have:

• Filed a 2019 or 2020 return claiming the child tax credit;
• A main home in the United States for more than half of the year; and
• A qualifying child who is under 18.

The advance monthly payments are $250 per month for dependents under 18 and $300 per month for dependents under the age of 6. Single filers who earned less than $75,000 ($150,000 for married filing joint) on their 2020 tax return are eligible for the full amount of the advance payment. For taxpayers above these thresholds, a reduced amount is still available if income reported on the 2020 return is less than $95,000 for single filers ($170,000 for married filing joint).

The child tax credit is automatic and taxpayers who do not want to receive the advance credit can opt out on the IRS Portal.

You should consider opting out if any of the following apply:

• If you typically receive a small refund, the advance payment could cause a balance due on your 2021 return
• You are no longer eligible in 2021 because:
  • Your 2021 Income exceeds the threshold for receiving the child tax credit, or
  • You claimed a dependency exemption in 2020 but are not eligible to claim the exemption in 2021.

Unlike the stimulus payments issued in 2020 and 2021, the advance payments of the child tax credit must be reconciled on the 2021 return. If you were not eligible for the credit in 2021, the advance payments will need to be repaid with the 2021 return. In January, the IRS will be mailing out Letter 6419 showing the total amount of advance payments your received. This letter will be needed to prepare your 2021 returns.

You have the ability to stop advance payments, or make changes to your banking information within the Child Tax Credit Update Portal. In order to do so, you must unenroll or make changes 3 days before the first Thursday of next month by 11:59 p.m. Eastern Time. You do not need to unenroll each month.