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Advance Child Tax Credits Overview

7 minute read
July 9, 2021

Overview

Advanced Child Tax Credits have been in the news for the last couple of months. The IRS is now prepared to begin making payments starting July 15th to eligible taxpayers. We will review the basics of the credit, how to unenroll from receiving advance credits, changing your banking information, and who will receive payments.

The Internal Revenue Service has created an online tool to enable you to quickly and easily update your bank account information so you can receive your monthly Child Tax Credit payment.

The bank account update feature was added to the Child Tax Credit Update Portal, which is available on IRS.gov website. Any updates made by August 2 will apply to the August 13 payment and all subsequent monthly payments for the rest of 2021.

You will receive your July 15 payment by direct deposit in the bank account currently on file with the IRS. Those who are not enrolled for direct deposit will receive a check. The IRS encourages people without current bank account information to use the tool to update their information so they can get the payments sooner.

The scammers are out in full force preying on people expecting advanced child tax credits. You should only use the IRS website at IRS.gov to make any changes to your personal information including banking information related to this advanced credit.

Photo by Jonathan Cooper on Unsplash

How to update direct deposit information

You should use the Child Tax Credit Update Portal to confirm your eligibility for the payments. If eligible, the tool will also indicate whether you are enrolled to receive your payments by direct deposit. A link to this portal is provided above.

If so, it will list the full bank routing number and the last four digits of your account number. This is the account that will receive your July 15 payment, and if you don't change the account, all future payments will go there as well.

Next, if you choose, you can change the bank account receiving the payment starting with the August 13 payment. You can do this by updating the routing number and account number and indicating whether it is a savings or checking account. Note that only one account number is permitted for each recipient—that is, the entire payment must be direct deposited in only one account.

If you want a quick way to check your eligibility, this IRS tool will give a general overview:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-eligibility-assistant

How to switch from paper check to direct deposit

If the Update Portal shows that you are eligible to receive payments but not enrolled to receive direct deposits, you will receive a check each month. If you want to switch to receiving their payments by direct deposit, you can use the tool to add your bank account information. Do that by entering your bank routing number and account number and indicating whether it is a savings or checking account.

The IRS urges any family receiving checks to consider switching to direct deposit. With direct deposit, you can access the funds more quickly. Direct deposit eliminates the chance of a lost, stolen or undelivered check.

Photo by Will Porada on Unsplash

Families can stop payments anytime

Even after payments begin, you can stop all future monthly payments if you choose. You do that by using the unenroll feature in the Child Tax Credit Update Portal. If you make this choice you will still receive the rest of their Child Tax Credit as a lump sum when you file your 2021 federal income tax return next year.

To stop all payments starting in August and the rest of 2021, you must unenroll by August 2, 2021.

If you are married and file jointly, both you AND your spouse must unenroll from payments. If only one of you unenrolls, then the IRS will send 1/2 of the monthly advanced child tax credit to the spouse who did not unenroll.

For more information about the unenrollment process, including a schedule of deadlines for each monthly payment, see Topic J of the Child Tax Credit FAQs on IRS.gov.

Who should unenroll?

Instead of receiving these advance payments, You may prefer to wait until the end of the year and receive the entire credit as a refund when they file their 2021 return. The Child Tax Credit Update Portal enables these families to quickly and easily do that.

The unenroll feature can also be helpful to any family that no longer qualifies for the Child Tax Credit or believes they will not qualify when they file their 2021 return. This could happen if, for example:

  • Their income in 2021 is too high to qualify them for the credit.
  • Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
  • Their main home was outside of the United States for more than half of 2021.

If you receive a total amount of advance Child Tax Credit payments that exceeds the amount of Child Tax Credit that you can properly claim on your 2021 tax year, you may need to repay to the IRS some or all of that excess payment. Such repayment may reduce your refund or cause a balance due on the return.

Some taxpayers may qualify for the repayment protection. Here are the guidelines for taxpayers who may qualify for repayment protection:

You qualify for full repayment protection and won’t need to repay any excess amount if your main home was in the United States for more than half of 2021 and your modified adjusted gross income (AGI) for 2021 is at or below the following amount based on the filing status on your 2021 tax return:

  • $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
  • $50,000 if you are filing as head of household; and
  • $40,000 if you are a single filer or are married and filing a separate return.

Here are the guidelines for taxpayer who will NOT qualify for any repayment protection:

You won’t qualify for any repayment protection if your modified AGI is at or above the amounts listed below based on the filing status on your 2021 tax return.

  • $120,000 if you are married and filing a joint return or if filing as a qualifying widow or widower;
  • $100,000 if you are filing as head of household; and
  • $80,000 if you are a single filer or are married and filing a separate return.
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Who is getting a monthly payment?

In general, monthly payments will go to eligible families who:

  • Filed either a 2019 or 2020 federal income tax return.
  • Used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment.
  • Registered for the advance Child Tax Credit this year using the new Non-Filer Sign-up Tool on IRS.gov.

An eligible individual who took any of these steps does not need to do anything else to get their payments.

Normally, the IRS will calculate the advance payment based on the 2020 income tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS is instead determining the payment using the 2019 tax return.

Eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. The IRS will issue advance Child Tax Credit payments on these dates: July 15, August 13, September 15, October 15, November 15 and December 15.

Tax returns processed by June 28 will be reflected in the first batch of monthly payments scheduled for July 15.

Child Tax Credit changes

The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 for children under the age of 6 and to $3,000 per child for children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child.

The new maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of:

  • $75,000 or less for singles,
  • $112,500 or less for heads of household and
  • $150,000 or less for married couples filing a joint return and qualified widows and widowers.

For most people, modified AGI is the amount shown on Line 11 of their 2020 Form 1040 or 1040-SR. Above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every $1,000 in modified AGI. In addition, the credit is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.

Taxpayers should carefully consider whether they wish to receive these advance child tax credit payments. However, it is still recommended to review your eligibility on the Child Tax Credit portal at IRS.gov, make sure your banking information is correct, and carefully consider the possibility of having to pay back these advanced payments if your income for 2021 turns out to be high to qualify.

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Cover photo credit Photo by Larry Crayton on Unsplash