Child Tax Credit Payment Updates

The IRS has updated its Child Tax Credit Update Portal to allow taxpayers to update their bank account information in order to receive their monthly Child Tax Credit payments.

According to the IRS website:

The bank account update feature was added to the Child Tax Credit Update Portal, available only on IRS.gov. Any updates made by August 2 will apply to the August 13 payment and all subsequent monthly payments for the rest of 2021.

Families will receive their July 15 payment by direct deposit in the bank account currently on file with the IRS. Those who are not enrolled for direct deposit will receive a check. The IRS encourages people without current bank account information to use the tool to update their information so they can get the payments sooner.

Please also keep in mind, that families can stop payments at any time on the updated portal. Some families may prefer to receive their money with their return after the year.

TOOL FOR ADVANCED CHILD TAX CREDIT PAYMENTS

The IRS has updated their Non-filer Sign-up tool which was originally designed to aid individuals not required to file income tax returns to sign up and receive the Economic Impact (stimulus payments) in 2020 and 2021.

Stimulus payments were based on data provided from either taxpayer 2020 or 2019 income tax returns. There was an issue with those that had income levels that were low enough that they were not required to file income taxes. The tool provided a way for these individuals to show up in the system and ultimately receive stimulus payments.

This tool has now been expanded to help families not required to file to receive Advanced Child Tax credit payments. An explanation of the enhanced child tax credits is provided below.

Child Tax Credits

Child tax credits that were previously available for children under the age of 17 in the amount of $2,000 have been expanded. The new credit allowed is $3,000 per child under age 18 and $3,600 per child under age 6. These amounts are only for 2021.

One more change to this credit is the credit is fully refundable. Under the prior law, the credit was 70% refundable. If a family had a child eligible for the $2,000 credit but had no income tax liability, they would only receive $1,400 (70% of the $2,000 credit). If the family had an income tax liability of $500, they would be allowed a $1,900 credit ($500 vs. income tax and $1,400 refundable). If the tax liability were $600 or more, then this family would receive the full $2,000 credit. Under the new law, the family would receive the full $3,000 (or $3,600) regardless of whether or not they had an income tax liability.

One big thing to keep in mind is the AGI limits.

The new law uses threshold amounts of $150,000 for joint filers, $112,500 for the head of household filers, and $75,000 for everyone else. Credits phase out at the rate of 5% for each dollar of AGI in excess of these limits.

While there are increased credit amounts for 2021 the AGI limits may disallow this credit for many taxpayers that have been eligible in years 2018, 2019, and 2020.

Under the Tax Cuts and Jobs Act (passed in December of 2017), the $2,000 credits discussed do not phase out until AGI exceeds $400,000 for joint filers and $200,000 for everyone else. This is the law for the years 2018 through 2025.

Therefore, taxpayers that exceed the AGI limits of the newly increased child tax credit will still be eligible for the $2,000 credit as long as they are under these much higher limits.

In other words, the new law expands the child tax credit but does not take anything away from taxpayers that cannot use this expanded credit based on AGI.

Advance Payments

The law provides that advance payments will be made to parents of either $300 or $250 per child per month (depending on whether they were under age 6 or under 18).

These advanced payments will begin in July and will over the course of the following 6 months pay 50% of either the $3,600 or $3,000 credit per child. The remaining amount due to the taxpayer(s) will be refunded upon the filing of the 2021 income tax return.

You must be aware. These are advance payments on the 2021 income tax returns. Unlike stimulus payments, if you as a taxpayer receive too much in the way of advance payments based on your income, you will have to pay it back.

Eligibility for Advanced Payments

The information provided below comes directly from the IRS website:

To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:

• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return: or
• Given us your information in 2020 to receive the Economic Impact Payment using the Non-Filers tool; and
• A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
• Made less than certain income limits.

We’ll use the information you provided earlier to determine if you qualify and automatically enroll you for advance payments. You do not need to take any additional action to get advance payments.

For guidance on tax matters, schedule a meeting with Lee Schmidt or other members of the A. L. Schmidt CPA Tax Practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances