Child Tax Credit

June 23, 2021 |

On June 22, 2021, the IRS announced the launch of the child tax credit (CTC) portal and issued additional FAQs surrounding the credit that will impact many taxpayers. As part of the American Rescue Plan Act enacted in March 2021, the CTC:

1. Is being increased from $2,000 to $3,600 per child ages 5 and under and to $3,000 per child ages 6 through 17.
   • The increase will be gradually phased out for adjusted gross income (AGI) above $75,000 (Single), $112,500 (HOH), and $150,000 (MFJ).
   • The increased credit will be reduced $50 for each $1,000 of AGI exceeding the threshold amount.
   • The CTC will not be reduced below $2,000 per child until your 2021 AGI exceeds $400,000 (MFJ) and $200,000 (MFS, HOH, Single), at which time it is reduced $50 for each $1,000 of AGI above the threshold amount.
2. Is now fully refundable for 2021, covering taxpayers who do not have earned income or do not owe any income taxes.
3. Is paid by the IRS in the form of advance monthly payments from July 15 through December 2021. Taxpayers will claim the other half of the credit when 2021 income tax returns are filed.
   • The advance payments for children ages 5 and under is $1,800 with up to $300 received in 6 monthly payments.
   • The advance payments for children ages 6 through 17 is $1,500 with up to $250 received in 6 monthly payments.

Taxpayers can take full advantage of the credit if your AGI (Line 11 of your 2020 Form 1040) is less than $75,000 (Single), $112,500 (HOH), or $150,000 (MFJ). Married filing jointly couples with $400,000 ($200,000 single) or less in AGI will generally get the same credit of $2,000 per child as in prior years. However, the IRS will also advance up to $1,000 of this credit per child from July 15 through December 2021.

It is important to note that the monthly advance of the CTC is a significant change. The credit is normally part of your income tax return and would reduce your tax liability. The choice to have the child tax credit advanced will affect your refund or amount due when you file your 2021 income tax return. If you receive an advance payment based on your 2020 income tax return and your 2021 AGI increases, you may need to pay back a portion of your advance payment when you file your 2021 income tax returns. You do have the option to opt out of the advance payments by using the IRS’s child tax credit and update portal. Future updates to the IRS portal will include tools to check the status of payments, the ability to change bank account information and mailing address, as well as make updates for things like family status and changes in income.

The process to opt out and unenroll from the CTC advance payments requires each taxpayer to create an account with the IRS or ID.me, go through several verification and dual authentication steps, upload a photo of your license or passport, be screened by a video selfie, enter your social security number, and allow the IRS to access the aforementioned information. It is important to note that in order for a married filing jointly couple to completely unenroll, both taxpayer and spouse must complete the opt-out process. If you are looking to opt out from the first advance payment and all subsequent advance payments, you must unenroll by Monday, June 28, 2021, at 11:59 PM. If you miss the deadline to unenroll from the first advance payment, the next deadline is August 2, 2021, or three days before the first Thursday of the next month. If you do nothing, the IRS will use information from your most recently filed tax return (2019 or 2020) and issue payments starting July 15.

Please contact your trusted Simon Lever advisor to discuss your specific situation and any questions that you may have.