What You Need to Know about Child Tax Credit Advances

Posted by Kathy Dean-Bradley, CPA

On May 17, the Internal Revenue Service and the Department of Treasury announced additional details and changes surrounding the Child Tax Credit (CTC) outlined in the American Rescue Plan. The full legislative text can be reviewed here: IR-2021-113. Our team has provided highlights of these updates and what you should consider below as letters from the Department of Treasury have started to arrive in many households.

 

Highlights for Eligible Filers

  • First payment will be made on July 15, 2021
  • Payments will be made on the 15th of each month, unless the 15th falls on a holiday/weekend
  • Payments will be automatic and no action will be required by the recipient unless there are new children born (or adopted) in 2021 or in 2020 and the 2020 return has not yet been filed
  • Payment amounts will vary based on 2020 tax return adjusted gross income, if the 2020 return has yet to be filed, the income levels will be based on the 2019 tax return
  • The maximum tax credit increased in 2021 to $3,600 per child under age 6 and $3,000 per child age 6-17
  • For the full increased credit, eligibility for joint filers is under AGI of $150,000 and $75,000 for single filers. The credit will phase out above these income levels at a rate of $50 for each $1,000 over the $150,000 for joint filers and $75,000 for single filers. Eligibility for the full credit includes joint filers whose AGI is under $150,000 and single filers whose AGI is under $75,000.
  • The full credit will be $300 per month, per child under the age of 6 and up to $250 per month for each child age 6–17
  • Joint filers earning above the phase out limit for the enhanced benefit but under $400,000 will still receive $2,000 per child up to age 17
  • The credit that is available for advance payment over the months of July through December 2021 will equal 50% of your total expected credit. The 50% credit will be paid in six equal installments starting on July 15, 2021.
  • FSA annual contributions for dependent care increased to $10,500 (up from $5,000) for single filers and those filing jointly and to $5,250 (up from $2,500) for married individuals filing separately
  • Dependent Care Tax Credit eligible expenses increased to $8,000 (from $3,000) for one qualifying individual and $16,000 (from $6,000) for two or more qualifying individuals
  • The maximum credit percentage of eligible expenses for the Dependent Care Tax Credit increased to 50% (up from 35%)

What We are Still Waiting to Hear

  • An opt-out option should be available in the future
  • The IRS is going to open a portal for individuals to alert the IRS to dependent changes for 2021 and 2020, assuming you haven’t completed your 2020 tax return

What You Should Consider

  • The advancement of your child tax credit will reduce the amount of the child tax credit available on your 2021 tax return as only 50% of the total credit will be available. If you and your tax advisor have utilized the child tax credit to adjust your estimated tax payments or withholding figures, you should consult with your tax advisor to see how to handle the current law change related to your individual tax situation.
  • For additional information about the CTC payments: IRS Child Tax Credit Link

We invite you to visit our COVID-19 Resource Center for past updates and additional information. Don’t hesitate to contact your BLS Team Member directly or via our contact form to see how these changes affect you.

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