Understanding the Advance Child Tax Credit

July 26, 2021

How It Affects You and Your Tax Return.

With the new updates to the Child Tax Credit, some in our community have sought greater clarification as to how these changes will affect their 2021 taxes. The opt-out system left many dissatisfied with the fact that they would be receiving their tax crediin monthly installments, rather than when filing their returns as in years’ past. What do these changes mean? No worries! Your credit union is here to shed a light on some of the confusing elements of the Advance Child Tax Credit. 

 

On July 15, the IRS began distributing advanced payments to qualifying families in the U.S. with children under the age of 17. These payments are an advance on their Child Tax Credit, which is typically included in your federal tax return. According to CBS News, “The new enhanced credit is part of a government effort to use the tax code to help low- and moderate-income families weather the ongoing challenges of the pandemic (Picchi, 2021).” This payment that you may have received (if you did not opt-out of the program) is an advance on your 2021 federal income child tax credit.  

 

The credit has also been expanded. The expansion was enacted by President Biden’s American Rescue Plan, which authorized “boosts [to] the credit from $2,000 to $3,600 for each child under 6 or $3,000 for children ages 6 to 17. It also makes the [Child Tax Credit] refundable — that means people can get it even if they don't owe federal income tax, increasing the number of low-income households that qualify for the payments (Picchi, 2021).” 

 

How do you know if you qualify for the Advance Child Tax Credit? Below is a list of requirements provided by the IRS on how you may qualify for these payments: 

 

To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have: 

  •    Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or 

  •    Given us your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here 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.” 

Further monthly payments can be expected on the dates below, unless you opt-out of the Advance Child Tax Credit system. Further information regarding these tax credits can be found at Credits & Deductions for Individuals | Internal Revenue Service (irs.gov)   

  •    July 15 

  •    August 13 

  •    September 15 

  •    October 15 

  •    November 15 

  •    December 15 

 

The last thing you may want to consider is how this change to the tax credit will affect your financial planning for 2022. As the word “advance” suggests, this is not a payment like the stimulus checks you have received previously. This money will be deducted from the Child Tax Credit that you typically receive with your tax return, which means your federal tax return may be less than what you expect to receive. If you want to avoid this, it is possible to opt-out of the Advance Child Tax Credit payments, which will not affect your 2021 federal income tax return. You can learn more about how to do so here: Child Tax Credit Update Portal | Internal Revenue Service (irs.gov) 

 

No matter what you decide for yourself and your family in regards to this tax credit update, you can rest assured that Towpath Credit Union will be here to serve you as our Members and help you achieve your financial goals.  

 

 

 

Work Cited: 

Picchi, A. (2021, July 13). Child Tax Credit 2021: Payments to be disbursed starting July 15 - here's when the money will land. CBS News. https://www.cbsnews.com/news/child-tax-credit-2021-payments-july-15-2021-07-15/.