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FAQ Special: Advanced Child Tax Credit Payments

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Should my client OPT OUT?

Your clients probably have questions about opting out, payment timelines, and how much more they’ll receive. Before we dive into those topics, let your clients know August 2nd is the deadline to skip the August 13th payment.

1. The client’s 2021 income will be above the thresholds ($75,000, $112,500, $150,000), and the client doesn’t want to repay the advance.
2. Financial situation. “I don’t need the money. I’d rather have a bigger refund next April.”

If it turns out your clients were overpaid or underpaid during the six months, they will have to take that into account with 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.

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.

A qualifying child must 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 the IRS has updated 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.

Useful FAQs

The advance is paid based upon an income threshold. What is that?

 

The full credit is available if the client’s AGI is below $150,000 MFJ, $112,500 head of household, $75,000 single. Child Tax Credit phases out by $50 for each $1,000 (or fraction thereof) by which AGI exceeds these income thresholds.

The IRS uses these numbers from the 2020 return to determine the advance. Actual 2021 AGI determines the accurate credit. EXCESS advances must be paid back.

How can my client get the benefit if their child was born in 2021 or if they gained custody of a child in 2021?

 

The IRS created the Child Tax Credit Update Portal where families can tell the IRS about children born in 2021 or about changes in child custody.

My client changed their bank account or now wants direct deposit. Can they go to the portal for that?

 

YES. The client can provide or update bank account information for direct deposit at the portal. The portal is also the place to tell the IRS about things that affect the amount of the advance payment, such as a change in the number of kids, marital status, or income.

Will my clients continue to get monthly payments next year?

 

The AMERICAN RESCUE PLAN ACT only expands the child tax credit for one year -2021. President Biden has proposed extending the expansion through 2025 as a part of the American Families Plan. Democrats hope to make the program permanent.

HOW MUCH WILL MY CLIENTS RECEIVE PER CHILD?

The IRS started sending direct deposits to eligible families on July 15. It said the first batch of payments, worth as much as $300 per child, went to about 35 million families and is worth about $15 billion.

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.

  • 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. 

 

WHEN WILL MY CLIENTS RECEIVE THE MONEY?

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.

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.

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.

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.

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.

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.

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.

Tax Practitioner Tips

 

Your clients may mix up the Economic Income Payments with the Child Tax Credit Advances. No one likes paying back excess credits. To reduce the frustration, consider this tip for the next “thrilling” tax season.

  • Tell them to Keep their end-of-year reconciliation letter.
  • The IRS will not be issuing a version of Form 1099 (or any other form) to taxpayers.
  • They will be issuing Letter 6419, which will say the amount of advance CTC payments paid in 2021.

Looking for more information? Follow Sharon Kreider, CPA at Western CPE for updates and insightful tax analysis.

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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