What you need to know about the 2021 Advanced Child Tax Credit

The Child Tax Credit (CTC) has always been a help for families trying to raise kids while dealing with life’s expenses. Due to the pandemic, the CTC has been increased this year and advance payments will be sent to eligible families. The IRS will pay half the credit amount in advance monthly payments from July 15 to December 31, 2021. You have the option to refuse the advance payments and take your payments in a lump sum when you file your 2021 taxes. Learn more about what’s the best choice for your family in this article.

Important Highlights:

  • The CTC is fully refundable, which means you can receive it even if you don’t owe the IRS.
  • Children ages 5 and younger are eligible for a credit of $3,600.00 or $300.00 monthly payments for 6 months and $1,800.00 at tax time for those that opted into monthly payments.
  • Children 6 to 17 are eligible for a credit of $3,000.00 or $250.00 monthly payments for 6 months and $1,500.00 at tax time for those that opted into monthly payments.
  • Advance CTC payments will be a boon for families who are struggling with the financial fallout of the pandemic, but it may not be in every taxpayer’s best interest to accept these payments now.

Money Smart Tips:

  • Consider opting out of monthly installments if you normally rely on the lump sum and reduce the possibility of unnecessary spending.
  • Use the extra money wisely and consider paying bills, loans, saving for unexpected expenses, or putting aside money for your child’s future.
  • Check out the CTC calculator and our budgeting calculator to help make informed decisions for your family.

Common Questions:

Do I need to take any action to receive the monthly payments? You do not need to take any steps to receive the advanced CTC if you filed 2020 taxes, which were due on May 15, 2021.

How will I receive my monthly payments? The IRS has announced payments will be issued in the same way as the three stimulus payments. If you received your stimulus payments via paper check, you’ll likely receive the CTC payments the same way, and if you received them via direct deposit, expect the same. Taxpayers who have not signed up to receive their Economic Impact Payments via direct deposit, but have filed their 2020 tax returns electronically, will receive their CTC payments the same way they filed their taxes; either electronically or via direct deposit.

Can I decline to receive the advance payments of the 2021 CTC? Yes, eligible taxpayers who do not want advance payments can choose not to receive them. Visit the IRS online for more information.

Is it a good idea to decline CTC advanced payments?  Under certain circumstances, it may be better to decline the advanced CTC. If you have reason to believe you will not be eligible for the full CTC at the end of 2021, you may end up owing the IRS some or all of the money you received when you file your 2021 taxes. This can happen if your income level rises in 2021, or if you have primary custody of the child(ren) receiving the credit in 2020, but not in 2021. If either of these may apply to you, consider opting out of the advance CTC payments. You won’t miss out on these payments entirely, as you’ll receive whatever is owed to you at the end of 2021. To avoid any surprises, it’s best to contact your CPA to discuss this further.

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