Child Tax Credit 2021: Payments, eligibility, and opting out

With the IRS now sending monthly advanced payments of the 2021 Child Tax Credit (CTC) to qualified families – the first installment hit taxpayers’ bank accounts this month – it’s important to know the details of this federal benefit and whether it makes sense for your family to take advantage of it.

While the CTC has been in place for many years, this is the first time it’s being sent out automatically on a monthly basis, as part of ongoing pandemic-related relief for Americans. About 35 million U.S. families with 60 million children received this federal benefit that went into effect in July – it’s providing a total of $15 billion in cash to families each month.

Still, you may have questions about payment amounts, eligibility, and whether opting out of the process is your best move. Read on for more details:

The advance payment: how it works

The advanced payment for eligible taxpayers is up to $300 a month for qualifying children under age 6, and $250 per month for each qualifying child between the ages of 6 - 17. The IRS is basing initial eligibility on your 2020 income tax return (or your 2019 return if the 2020 return has not been processed). The payments were scheduled to begin automatically on July 15 and in most cases, you will not need to do anything to initiate the payments. However, you may want to provide the IRS with updated information if your income, number of qualifying children, or direct deposit information has changed.

Qualifying income: has yours changed?

If your income has increased above the qualifying thresholds for 2021, you may want to decline the early payments of the credit. The credit begins to phase out once you reach the modified adjusted gross income thresholds of $75,000 for single filers, $150,000 for married filing jointly filers, and $112,500 for head of household filers. Taxpayers receiving credits that they are not qualified for in 2021 will have a reduced refund or increased payment due when their 2021 tax return is filed. It’s important to note that this federal benefit is different than the stimulus checks, which taxpayers were not required to repay based on their final 2020 income tax return.

Keep in mind that if you do decline the advanced payments but are qualified to receive the credit, you will be able to take the credit when your 2021 income tax return is filed.

The CTC portal

If you’ve decided to unenroll in this process, so you don’t receive these advance payments, visit the IRS Child Tax Credit Update Portal. The portal also allows you to:

  • Update your direct deposit or mailing information. If the IRS has your current direct deposit information, you can expect payments to be deposited directly into your bank account. If not, they will mail you a check. If your direct deposit or mailing address information has changed since your last tax return was processed, you will be able to update your information using the CTC Portal.
  • Add an eligible child on for your 2021 child credit calculation (if you have a newly eligible child since your last tax return was processed).
  • Report a change in your marital status.

To apply for the advance payments when you did not file a 2020 income tax return and do not plan to (if not required), you can use the “Child Tax Credit Non-filer Sign-up Tool” here.

Also note that should you choose not to opt out of the advance credit payments, we will need your actual payments received during 2021 in order to properly reconcile the payments and file your 2021 income tax return. In January 2022, the IRS will send you Letter 6419 to provide the total amount of advance Child Tax Credit payments that were disbursed to you during 2021. Please keep this letter regarding your advance Child Tax Credit payments with your tax records.

Additional resources

Questions about the Child Tax Credit 2021? Please reach out to your Rehmann advisor or contact us here.

You can learn more about planning opportunities for your family and your business by joining Rehmann’s Empowered Planning series of webinars. These complimentary webinars and Q&A sessions are taking place throughout this year and provide expert insight and real-time examples of organizations and individuals who are seeking to build and maintain a strong financial foundation during these changing economic times. Learn more about the series, which is focused on planning ideas to help you move forward confidently, at Rehmann.com/webinars.

Published in Tax

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