Child Credit Advance Payments
As discussed in our March 11, 2021 post, the American Rescue Plan expanded the child credit for 2021 and created an advance payment of a portion of the credit for certain taxpayers.
Beginning in 2021, the maximum child tax credit is $3,600 per child for children under the age of 6 and is $3,000 per child for children between ages 6 and 17.
The higher child credit amounts are phased out when modified adjusted gross income is over $150,000 for married taxpayers filing a joint return (or $112,500 for heads of household, and $75,000 for all other taxpayers). Note: Taxpayers who are phased out of the expanded child credit may still qualify for the credit of $2,000 per child credit, if they have income under the higher threshold under the rules that existed prior to 2021.
The IRS has indicated that it will begin making the monthly advance payments on July 15, 2021. Eligible taxpayers will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above.
The IRS will compute the advance payment for each taxpayer using the income and number of children for whom the child credit was claimed on the income tax return for the prior tax year. Beginning with the 2021 tax year, when taxpayers file their income tax returns, they will be required to reconcile the advance payments received with the amount of the child credit for which they are actually eligible, using the actual income and number of eligible children for the tax year.
Generally, if a taxpayer receives advance payments of more than the child credit for which the taxpayer is allowed for the tax year, the taxpayer must repay the excess amount received. (This excess amount will be added to the income tax liability of the taxpayer.)
There are exceptions to this repayment requirement for certain taxpayers with income below an applicable threshold. Taxpayers with modified adjusted gross income of less than or equal to $60,000 for married joint (or $50,000 for heads of household and $40,000 for all other taxpayers) are permitted to reduce the excess amount that must be repaid by up to $2,000 per child. This $2,000 reduction in the repayment amount is phased out for taxpayers with modified adjusted gross income that exceeds these thresholds and is fully phased out at $120,000 for married joint (or $100,000 for heads of household and $80,000 for all other taxpayers).
If a taxpayer’s income, filing status or number of eligible children has changed, using an online portal, the taxpayer is supposed to inform the IRS, so that the IRS can adjust the amount of the monthly advance payments to reflect any changes. (The IRS has not yet issued details about this portal.)