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Important Information About the Upcoming Advance Child Tax Credit Payments

You may be aware of significant enhancements to the child tax credit (CTC) by the American Rescue Plan Act of 2021. As previously reported, these enhancements temporarily expand the eligibility for, and amount of, the CTC for 2021. The IRS will begin making advanced payments of half of the refundable credit around July 15, 2021 and continue through December 2021.

Temporary Expansion Details

  • The definition of a qualifying child is broadened to include 17-year-olds (e., children who have not turned 18 by the end of 2021).
  • The CTC is increased from $2,000 to $3,000 per child ($3,600 for children under age 6 as of the close of the year). The increased credit amounts are subject to a phase-out rule, based on modified adjusted gross income.
  • The CTC is fully refundable in 2021 for a taxpayer (both spouses on a joint tax return) living in the U.S. for more than one-half of the tax year or who is a resident of Puerto Rico during the tax year.
  • To determine your advance CTC payments, the IRS will look at your 2020 tax return, or, if it is not yet filed, your 2019 tax return; this will reduce the amount available as a credit on your 2021 tax return. If you receive advance payments that are in excess of the CTC allowable to you for 2021, it will increase the amount owed on your 2021 tax return. For certain low- and moderate-income taxpayers, the excess may be reduced by a safe harbor amount, limiting the amount by which they will have to repay and allowing them to keep a portion of the excess amount.

How to Unenroll from the Program
Please note, you are automatically enrolled in this program, and if the IRS determines you are eligible, will begin sending you advance CTC payments. If you do not wish to receive these advance payments, you will receive the full credit on your 2021 tax return. To unenroll from the program, visit the IRS website here, click on ‘Unenroll from Advance Payments,’ and follow the instructions. If you are filing jointly, each individual taxpayer needs to unenroll from the program.

Contact your KPM advisor with any questions.

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