Change to Child Tax Credit Payments
The IRS recently made several changes to the Child Tax Credit rules. These changes may put money in your pocket now and may affect your tax refund next year.
Many taxpayers with children claim the Child Tax Credit on their tax returns and often receive a large refund check. The maximum Child Tax Credit has increased for 2021. In addition, the Credit is now available for children who are age 17. The maximum Credit is $3,600 for each qualifying child under the age of 6 and $3,000 for each qualifying child ages 6 through 17. Your actual credit depends on your eligibility.
As a result of the Covid-19 pandemic, the IRS will now send six monthly payments to taxpayers who qualify for the 2021 Child Tax Credit. These are advance payments of half of the Child Tax Credit you would include on your 2021 Form 1040 in 2022.
Taxpayers who claimed the Child Tax Credit on their 2019 or 2020 Form 1040 and who qualify to receive the credit in 2021 are automatically enrolled in the new advance payment system. You can check to see if you are eligible for the advance Child Tax Credit payments by going to https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021.
If you want to stop these monthly payments and receive the Child Tax Credit as you did in the past, you can “opt out”. For example, if you do not qualify for the Child Tax Credit in 2021 even though you did qualify in past years, you may have to pay the advances back next year unless you opt out. Divorced parents who alternate years of claiming the Credit may also want to opt out to maintain this arrangement. Others may have plans for the full refund next year.
The IRS has a new portal you can use to opt out of the monthly payments: https://www.irs.gov/credits-deductions/child-tax-credit-update-portal. You can also use the portal to update your payment information and bank account.
These advance payments start on July 15, 2021. If you do not opt out, they will continue each month thereafter to December 15, 2021. The IRS will pay half the total 2021 credit amount in these six advance monthly payments. You can claim the other half of the credit when you file your 2021 income tax return in 2022.
Those taxpayers who receive the monthly advance payments may expect their refund from the IRS to be lower next year. The refund amount may be lower since it would not include the money already paid in 2021 for half of the Child Tax Credit due to you.
Another change to the Child Tax Credit is that people with children can still receive the credit even if they do not have any income this year.
Low-income families who do not normally file a tax return can also use the IRS’ non-filers sign-up tool to register for the advance payments. The portal can be accessed here: https://www.irs.gov/credits-deductions/child-tax-credit-non-filer-sign-up-tool
If you have questions about income tax issues, the Legal Aid Society of Northeastern New York’s Low Income Taxpayer Clinic (LITC) may be able to help. The Clinic’s services are free of charge. You can call the LASNNY Legal Line at (833) 628-0087 and ask for our LITC. The Clinic does not generally provide tax preparation services.