Temporary Expansion of the Child Tax Credit, Advance Payments and how to Enroll or Unenroll

In March of 2021, the American Rescue Plan Act of 2021 provided a temporary expansion of the child tax credit for tax year 2021. This expansion increased the maximum credit amount to $3,000 per child ($3,600 for children under age 6 as of the end of the year) and made the credit fully refundable. The list of eligible children for whom the credit can be claimed was also expanded to include 17 year-olds who haven’t turned 18 by the end of 2021. The increased credit amount is phased out for taxpayers with modified AGI over $75,000 for single and married filing separate taxpayers, $112,500 for head of household and $150,000 for married filing joint and qualified widows.

Beginning on July 1, 2021, the IRS will begin to pay out what they estimate to be one half of the credit the taxpayer will qualify for in monthly equal installments through December 2021. The second half of the credit will be claimed when filing the 2021 tax return. The IRS will estimate the credit amount based on the last filed tax return (either 2020 or 2019). For those who are not required to file a tax return, click here to submit information in order to receive the advance payments of the expanded child tax credit.

Since half of the credit is being paid to taxpayers in advance, it is possible some families will receive more payments than they are allowed to ultimately claim. These payments will be reconciled against what is reported on the 2021 tax return. Depending on the taxpayer’s modified AGI range, overpayments could be required to be repaid. If a taxpayer believes they will be in a situation where they will be required to pay back the advance payments and would prefer to unenroll from receiving the advance payments up front, they can use the IRS portal to unenroll themselves by clicking here.

For more detail on the expanded credit, including specific information regarding the thresholds for qualifying for the credit and thresholds for who would have to repay excess payments of the credit click here for our full article.

Please do not hesitate to contact our office if you have any questions.

Gatto, Pope & Walwick, LLP
Certified Public Accountants