Congress has passed a number of coronavirus relief packages throughout the pandemic. While the three rounds of Economic Impact Payments are the most famous provision of those legislative efforts, they were technically an advance on the new Recovery Rebate Credit.
Signed into law earlier this year, the American Rescue Plan Act of 2021 (ARPA) authorizes a lot of the same relief found in previous legislation. But one change has prompted the Internal Revenue Service to this week begin sending more than 36 million letters to potentially eligible taxpayers: The upcoming Advance Child Tax Credit monthly payments.
Who will receive a letter about the Advance Child Tax Credit from the IRS?
The Advance Child Tax Credit letters are being sent to three groups to ensure as many eligible taxpayers as possible receive their payments:
- Taxpayers who filed a tax year 2019 return
- Taxpayers who filed a tax year 2020 return
- Taxpayers who registered for an EIP using the Non-Filers: Enter Payment Info Here Tool
If the IRS determines that any recipients of the first letter are indeed eligible for Advance Child Tax Credit payments, those taxpayers “will receive a second, personalized letter listing an estimate of their monthly payment, which begins July 15.”
How do taxpayers qualify for the Advance Child Tax Credit?
Taxpayers must first qualify for the 2021 Child Tax Credit to receive advance payments. Under the previous law, only children 16 and younger were eligible, the maximum allowable credit was $2,000, and only $1,400 was refundable. For tax year 2021, children who are 17 and younger now qualify for the credit, the maximum allowable credit is increased based on the age of each qualifying dependent, and the entire credit is refundable.
The new maximum allowable amounts for the Child Tax Credit are:
To qualify for the maximum allowable credit for each qualifying child, eligible taxpayers must have a modified adjusted gross income (MAGI) below the following thresholds:
- $75,000 or less for singles
- $112,500 or less for heads of household
- $150,000 or less for married couples filing a joint return and qualified widows and widowers
The IRS explains that the amount of the credit begins to phase out when a taxpayer’s MAGI exceeds these thresholds: “The extra amount above the original $2,000 credit—either $1,000 or $1,600 per child—reduced by $50 for every extra $1,000 in modified AGI.”
If the Advance Child Tax Credit is being paid this year, what tax year is the IRS using to determine eligibility?
Normally, eligibility for a tax credit is determined using information from that tax year’s return, which is then filed by April 15 the following year (pandemics notwithstanding). Since the Advance Child Tax Credit payments will be made this year, the IRS has to determine eligibility using prior tax information: tax year 2019 or 2020 tax returns, whichever is most recent.
If that sounds familiar, it’s because the agency used a similar method to quickly distribute EIP funds. The good news is that most qualifying taxpayers who filed their 2020 return don’t have to do anything else to receive their advance payments. The bad news is this approach can result in eligible non-filers not receiving advance payments—prompting the following caveat in this week’s press release:
“The IRS urges individuals and families who haven’t yet filed their 2020 return—or 2019 return—to do so as soon as possible so they can receive any advance payment they’re eligible for. Filing soon will also ensure that the IRS has their most current banking information, as well as key details about qualifying children. This includes people who don’t normally file a tax return, such as families experiencing homelessness, the rural poor, and other underserved groups.”
How much will the Advance Child Tax Credit payments be worth?
The Advance Child Tax Credit payments are worth up to half of the total credit, capping out at a monthly payment of $300 for each qualifying child under 6 and $250 for all other qualifying child dependents.
When will the Advance Child Tax Credit payments be sent?
Advance Child Tax Credit payments will be made on the following days this year:
- July 15, 2021
- August 13, 2021
- September 15, 2021
- October 15, 2021
- November 15, 2021
- December 15, 2021
Reminder: The IRS will use whichever payment method was chosen by each qualifying taxpayer on their most recent return, whether direct deposit or physical check.
Where can taxpayers find more information about the Advance Child Tax Credit?
More information about the Advance Child Tax Credit can be found at IRS.gov/ChildTaxCredit2021. The agency notes this page will soon host links to two special online resources:
- An interactive Child Tax Credit eligibility tool to help families determine whether they qualify for the Advance Child Tax Credit payments.
- Another tool, the Child Tax Credit Update Portal, will initially enable anyone who has been determined to be eligible for advance payments unenroll/ to opt out of the advance payment program. Later this year, it will allow people to check on the status of their payments, make updates to their information, and be available in Spanish. More details will be available soon about the online Child Tax Credit Update Portal.
Source: IR-2021-124
Trussell Tax