Advanced Child Tax Credit

The American Rescue Plan (ARP), which was signed into law by President Joe Biden on March 11, 2021, included important changes to the Child Tax Credit. 

The ARP increased the 2021 Child Tax Credit from $2,000 per child to $3,000 per child ages 6-17, and to $3,600 for children under the age of 6. Taxpayers with adjusted gross income of less than $150,000 ($75,000 for individuals) are fully eligible for the credit, with credit phaseouts if income exceeds those thresholds.

In addition, the ARP allowed the Internal Revenue Service to deliver half of the expected credit to eligible families beginning in July. The advanced payments will be up to $250 per month for each child between 6-17, and $300 per month for each child under 6. Advanced payments will be paid through December, with the remainder of the credit being claimed or refunded when 2021 tax returns are filed in 2022.

While the increase of the Child Tax Credit is a major benefit, advancing the payments may be a concern for some families. For one, many Americans budget for one large tax refund rather than smaller amounts each month.  Another major concern that comes with advancing the payments is on the tax compliance side. People may not remember how much they received in advance and, therefore, may not factor in what was already received when filing their 2021 tax return or paying quarterly estimated tax payments.  This, in turn, could result in tax adjustment notices and even penalty assessments for errors on the taxpayers’ return.  Additionally, many taxpayers who will not be eligible to claim the Child Tax Credit on their 2021 income tax returns (due to income limitations) are receiving the advanced payments.

Fortunately, the IRS has given taxpayers an option to opt out of receiving the advanced payments. This can be done at the following IRS website: 

https://www.irs.gov/credits-deductions/child-tax-credit-update-portal

Even if the first advanced payment was received in July, taxpayers can opt out of receiving any remaining payments through the end of the year.

As of now, there are no plans for the expanded credit or the advanced payments to continue after 2021. We will continue to provide more information on the advanced Child Tax Credit as it becomes available

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Proposed Legislation Targets Estate and Gift Tax Planning
Tax, Tax Reform BY Kirk Mitchell
Tax Reform 2021: Build Back Better Act Update as of Wednesday September 15, 2021
IRS Announces New Update Regarding Streamlined Filing Compliance Procedures and Section 965
New Per Diem Rates Announced for the Transportation Industry – Can Your Company Use This as a Driver Retention Tool?
Tax-Exempt Organizations Must Notify IRS of Responsible Party Changes
Looking for Clarity from the IRS Regarding Foreign Activities? Be Careful What You Wish For!
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×