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Advanced Child Tax Credit Payments: What to Know

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TRANSCRIPT: ADVANCED CHILD TAX CREDIT PAYMENTS

Sharon Kreider: 

Hi, I’m Sharon Kreider, CPA, and we’re here to talk about the child tax credit and particularly the advanced payments, which begin July 15th, 2021. First, a little background on the child tax credit. 

Background: 

We’ve had a child tax credit before, and it was expanded in prior legislation. This is another expansion of the child tax credit. It is from the American Rescue Plan Act, which was at the beginning of March 2021. And the credit for this expansion is presently only effective for 2021. 

The estimate is that 39 million households will qualify for this expanded child tax credit. That’s almost 90% of the children in the United States. So the families with qualifying children, 39 million households are stated to get an advance, a monthly payment. And, of course, the American Rescue Plan had several provisions to stimulate the economy and ensure that we had a smoother ramp-up to where we were before the shutdowns and restrictions from the COVID pandemic.

Sharon Kreider: 

The payments are as much as:

  • $3,000 per child for children between ages six and 17 years old. 
  • $3,600 per child for children under six years old. 

Note: All working families will get the full credit if they make less than $150,000 for a couple, and less than $112,500 for a family with a single parent, head of household, and $ 75,000 for a single parent, filing separately.

HOW MUCH WILL MY CLIENTS RECEIVE PER CHILD?

 

Sharon Kreider: 

The start date for the payments is mid-July. That’s already set and ready to go, according to the IRS. The first time people will receive a portion of the child tax credit in monthly payments is mid-July. 

  • For every child between age six and 17 years old, families will get $250 each month for each of the children. 
  • For every child under six years old, families will get $300 each month in advance. 

Note: 80% of the taxpayers who asked that their refunds be direct-deposited, will get these payments in their bank account on the 15th of every month until the end of 2021.

Sharon Kreider: 

People who don’t use direct deposit will receive their monthly payment by mail, around the same time, around mid-month, beginning in July, and going through mid-month of December. Important changes to the child tax credit will help many families get advanced payments of the credit starting in the summer, but your client claims the credit when they file their 2021 income tax return, reducing it by whatever they received in advance. So it is possible for your client to opt-out of advanced payments, get to that in a moment. So they could opt out and claim the whole 100% of their credit when they file their 2021 tax return.

Sharon Kreider: 

But of course, that’s really in February, March, or April of 2022, or they can get 50% of the credit in cash, paid out monthly, uh, beginning, beginning in July. Under the cash payment program, uh, the client, the taxpayer gets six monthly payments from the IRS via direct deposit. 

Example:

If our taxpayer qualified for a $3,000 child tax credit for their ten-year-old child, they would get six $250 payments between July and December, for a total of $1,500. And then they claim the remaining $1,500 on a reconciliation sheet, not yet reduced, released, but on a reconciliation sheet for their 2021 tax return when you file it in the 2022 tax season.

Sharon Kreider: 

The payments are made the 15th day of each month unless the 15th falls on a weekend or a holiday, and then it’ll be direct-deposited the following working day. The IRS will use the most recent tax return to determine whether the client qualifies for the child tax credit. So that is, usually, the 2020 tax return will be the one filed, unless you filed an extension for the client. And then the IRS will look at the 2019 tax return to determine the advanced payments. Low-income families who may not normally file a tax return can use an IRS non-filer signup tool on the IRS website- to register for monthly advanced child tax credit payments.

WHEN WILL MY CLIENTS RECEIVE THE MONEY?

Sharon Kreider: 

They might hurry on that since there’s not much time until the payments begin, but there is a non-filer tool set up. If the client would rather not have the advanced payments… And why wouldn’t they want advanced payments? Maybe they don’t know what the income will end up being. They don’t want an advance that they actually have to pay back when they file their tax return. So they might opt-out, and they can opt-out at the IRS website on a portal where we have a place to tell the IRS about changes in the number of kids, or marital status, or income from the prior file tax return from 2019 or 2020 tax return.

Sharon Kreider: 

If it turns out your clients were overpaid or underpaid during the six months, they will have to tune that upon their tax return at the end of the year. So if they’re underpaid because they had a baby or their income dropped, or whatever, they’ll get a bigger credit on their 2021 tax return when you file the tax return. If they were overpaid, they have to pay the amount back, which is different from what happened on the Economic Impact Payments, the stimulus payments, that’s different where if we were overpaid, we could keep it. If we were underpaid, we could claim more. This is not the same law. Overpayments must be returned.

Sharon Kreider: 

To qualify for that advanced child tax credit, the client must have filed a 2019 or 20 tax return, and claim the child tax credit on that return, or given their information to the IRS on the portal for non-filers on the Economic Impact Payment. There’s already a portal sitting there and they may have used that to get the most recent was the $1,400 Economic Impact Payment, stimulus rebate payment. The client must have a home in the United States for more than half of the year. That means 50 states and the district of Columbia. And there’s an exception for military, active duty military stations, outside of the United States. So don’t worry about that.

Sharon Kreider: 

A qualifying child has to be under age 18 at the end of the year, and have a valid social security number. There is a non-filer signup tool on the IRS website, a portal. And that has been used before to register for Economic Impact Payments, and this is a place that has been updated by the IRS to register changes for this advanced payment. The tool is an update of last year’s IRS non-filer tool, and that was designed to help individuals who don’t normally file a tax return, register for the third round of Economic Impact Payments stimulus checks, the $1,400, and to claim recovery rebate credits for the first two rounds.

Sharon Kreider: 

So this is an update of that non-filer tool if you happen to have a client. It’s not gonna be my client who is the low-income non-filer, but it might be my client’s child or grandchild, or it might be somebody at the charity that you’re on the board of that you need to help with these issues. So that’s our quick information on the advanced payments for the new child tax credit for 2021. You can count on us to continue these updates. Thank you!

Sharon Kreider, CPA, has helped more than 15,000 California tax preparers annually get ready for tax season. She also presents regularly for the AICPA, the California Society of Enrolled Agents, CCH Audio, and Western CPE. You’ll benefit from the detailed, hands-on tax knowledge Sharon will share with you—knowledge she gained through her extremely busy, high-income tax practice in Silicon Valley. With her dynamic presentation style, Sharon will demystify complex individual and business tax legislation. She’s a national lecturer for business and professional groups and consistently receives outstanding evaluations. In 2014, she was awarded the prestigious AICPA 2014 Sidney Kess Award for Excellence in Continuing Education.

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