Advance Child Tax Care Credit Payments in 2021 

The IRS has released new information regarding the Advance Child Tax Credit Payments in 2021. Important changes to the Child Tax Credit will help many families get Advance Child Tax Credit Payments starting this summer. The IRS will pay half the total credit amount in advance monthly payments beginning Thursday, July 15, 2021. Your client will claim the other half when you file their 2021 Individual Income Tax Return. These changes only apply to tax year 2021.

These Advance Payments will reduce the Child Tax Credit your client will receive with their 2021 tax refund. Your clients have the option to Unenroll From Advance Payments if they would prefer to receive the credit with their tax refund.

Below are two examples for you to consider:

1.) Taxpayer is married with 2 kids, 10 and 14 years old. The taxpayer’s taxable income is $35,000, the taxpayer typically receives a refund of $2,000 to $3,000 due to the Child Tax Credit and the Earned Income Credit.

If the taxpayer does not Unenroll from Advance Payments, the potential Child Tax Credit of $3,000 (for two children) will be spread out over the rest of this year. The taxpayer will receive Advance Payments of $500 a month until December.

The taxpayer’s 2021 return the refund will be reduced by the total amount of Advance Child Tax Credit Payments received. Your client might only receive a $1,000 refund or less.

2.) The taxpayer is Head of Household with 3 kids, 15, 11, and 8 years old. The taxpayer’s taxable income is $100,000. The taxpayer typically receives a refund of $200 because the taxpayer minimizes the amount of tax withheld from their paycheck to cover the tax owed.
 
If the taxpayer does not Unenroll from Advance Payments, the potential Advanced Payments will be $750 a month through December. The advanced payment will be $4,500.  The taxpayer’s 2021 return the refund will be reduced by the total amount of Advance Child Tax Credit Payments received. The taxpayer will owe the IRS $1,500.

Your clients will need to Unenroll if they don’t want to get advance payments or visit the IRS website to check if they are enrolled to receive payments.

Below is a link to the IRS 2021 Child Tax Credit and Advance Child Tax Credit Payments — Topic J: Unenrolling from Advance Payments FAQs.
 
https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-j-unenrolling-from-advance-payments

Please note that Married Filing Jointly taxpayers will need to unenroll individually. Please see Q J6 and Q J7 in the link above.