Understanding the Advance Child Tax Credit

As we pass the halfway point of 2021, the Biden Administration has begun implementing policies that intend to offset the economic consequences resulting from the COVID-19 pandemic.

Pursuant to this effort, the Biden administration unveiled The American Rescue Plan on March 11, 2021. One of the primary components of the American Rescue Plan is an increased and advanced payment of the Child Care Tax Credit (“CTC”). In recent years, a qualifying family was entitled to receive a $2,000 credit per child; and prior to 2017, qualifying families were only eligible for a $1,000 credit per child. However, under the newly ordered CTC, every qualifying family will receive a $3,000 credit for each child between the ages of 6 and 17 and a $3,600 credit for each child under the age of 6 years old. Families with combined adjusted gross incomes over $150,000 for married filers, over $112,500 for heads of household, and over $75,000 for all other taxpayers will not be qualified for the entire amount of the tax credit, but remain eligible for a reduced rate. The credit phases out completely at $440,000 for married filing joint returns, and at $240,000 for all others.

A big advantage to the newly ordered CTC is that half of the credit can be paid to qualifying parents in advance. In a typical year, qualifying families would not receive this credit until they file their taxes the following year. Conversely, in an effort to expedite the economic recovery process, qualifying families will now receive half of the tax credit in monthly installments beginning in July of 2021. These monthly installments will be paid in the amount of $250 for each child between the ages of 6 and 17 and $300 for each child under the age of 6. Qualifying families can expect a total of six payments to be made once a month from July to December of 2021.  In addition, CTC allows the parent of a child who is turning 17 during the 2021 calendar year to receive the benefit, which was not the case in previous years.

It is important to note that these payments are an ADVANCE of the credit so keep in mind that your available CTC remaining when you file your return will be less.

Each qualifying family is automatically enrolled in the plan, so there is no additional action required to receive these benefits. However, if you do not wish to enroll in this program and elect instead to receive your full tax credit when you file your return, you can do so on the IRS website under the manage payments tab. A link to this page can be found below:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

If you have any questions about the newly implemented CTC or any other tax policies that may arise during this recovery period, please feel free to contact Glick and Trostin, LLC at 312-346-8258.