Child Tax Credit Advance Payment

By Michael Mazza, CPA, MST, Shareholder

As you may have seen or read the IRS has started issuing information and payments on the Child Tax Credit Advance Payment Program.  The program will send taxpayers advanced payments on the Child Tax Credit that would normally be claimed on their tax return.  Please read below for information on this program as well as a link to the IRS website to manage and follow any advance payments that you may be eligible for.

What is the Child Tax Credit?

  • For 2021 the child tax credit has been increased to $3,600 for children under the age of 6 years old, for children ages 6 to 17 the credit is $3,000 per eligible child.  This is increased from the previous $2,000 per eligible child in previous years.

The credit amount will start phasing out for families at $150,000 for married filing jointly taxpayers or $112,500 for single or head of household filers.  The credit plateaus at $2,000 per eligible child for income levels up to $400,000 for married filing jointly and $200,000 for all other filers.  Filers with income above $400,000 will not be eligible for the credit as in previous years.

What is the Advance Payment?

  • Starting in late July 2021 the IRS will be sending advance payments of the credit to eligible taxpayers.  For 2021 the IRS will distribute half of the eligible credit to taxpayers and future years will distribute the entire eligible credit equally throughout the year.

How is the Advance Payment Calculated?

  • The IRS will calculate the Advance payment by estimating what you are eligible to receive based on information on your most recent filed tax return.

How will I receive the Advanced Payment?

  • If the IRS has your banking information from your previous tax return, your payment will be sent to you as a direct deposit.  The IRS will use the bank account information listed on your most recent filed tax return.  If the return did not list any bank account information the payment will be mailed to the address listed on the last filed return.

What if my bank account information or address has changed?

  • The IRS has launched the Child Tax Credit Update Portal (CTC UP) on their website to manage the Advanced Credit.  Using this tool, you can update your bank information as well as make other changes such as updating mailing address, add or subtract the number of qualifying children, update marital status, or report a change in income if needed.

The Child Tax Credit Portal can be found at this website address. (Child tax Credit Update Portal)

What if I do not want to receive the Advance Payment and instead take the credit on my return like in past years?

  • Using the IRS Portal, you can unenroll from the advanced payments and claim the credit on your tax return filing as in past years rather than receiving the payments during the year.

How will this credit be reconciled on my tax return?

  • When you file your tax return you will compare the total amount of credit you are eligible for against the advance payment you received during the year.  If your eligible credit is greater than the advance received, you will receive the difference as a credit on your return.  However, if your eligible credit is less than what you received in advanced payments then you could owe the additional amount back with your return.

There is some repayment protection depending on your income level when filing your return.

How do I keep track of the Advanced Payments during the year and supply them for my taxes?

  • The IRS will be issuing forms in January 2022 to report the Advanced Payments made to you during the year.  You will receive Letter 6419 from the IRS and will need to provide this to your tax preparer so it can be reconciled on your return.

This letter will be mailed to your address on file with the IRS.  If your address has changed since the last filing or will change before then you should update you address with the IRS using the Child Tax Credit Update Portal.

The IRS has set up a list of additional Question and Answers at the following link. (Child Tax Credit Advanced Payment FAQ)  Please refer to these questions or contact Detweiler Hershey & Associates with any additional questions.

Filed in: Client News