Advance Child Credit Payments Will Start on July 15

Advance Child Credit Payments Will Start on July 15

The IRS will start making monthly advance payments of the enhanced 2021 child tax credit on July 15. The monthly payments will be up to $300 for each qualifying child under age six, and $250 for each qualifying child between the ages of six and 18.

The IRS will make the advance credit payments via direct deposits, paper checks or debit cards on the 15^th of each month from July through December (on the 13^th for August). This monthly distribution schedule should help families incorporate the advance payments into their budget planning for the rest of 2021.

An individual who qualifies for the advance payments should receive IRS Letter 6417 in June, which will estimate the amount of the monthly payments. The IRS expects to make advance payments for about 65 million children in 39 million households, or about 88% of all children in the U.S.

Enhanced Child Credit for 2021

The advance payments of the 2021 child credit are just one of the temporary expansions of the credit for 2021:

• The maximum 2021 credit increases from $2,000 to $3,600 per year for a qualifying child under age six, and $3,000 for a qualifying child age six or older. However, this increase is phased out for higher-income taxpayers.
• The credit is fully refundable for taxpayers who live in the U.S. and Puerto Rico.
• The age cut-off for a qualifying child rises from 17 to 18.
• The credit is expanded to Puerto Rico and American Samoa.

These expansions of the credit are expected to lift more than 5 million children out of poverty this year, reducing child poverty by more than half. However, they are temporary—they apply only for 2021.

Advance Payments of 2021 Child Credit

To be eligible for advance payments of the child credit, an individual must have:

1. a qualifying child for 2021, and
2. a main home in the United States (the 50 states and the District of Columbia) for at least one-half of the year.

An eligible individual does not have to have any income to receive the advance payments.

The IRS will make monthly advance payments of the credit from July 15 through December 15. Total advance payments are equal to one-half of the individual’s expected credit for the year. Thus, each monthly payment in the last six months of 2021 is equal to 1/12 of the taxpayer’s expected credit.

EXAMPLE 1: Darla has three children, and her AGI is below the credit phaseout thresholds. At the end of 2021, her youngest child will be two years old, her middle child will be five years old, and her eldest child will be eight years old. Darla’s expected child credit for 2021 is $10,200 ($3,600 + $3,600 + $3,000). Thus, her total advance credit payments for 2021 are $5,100, so each monthly payment is $850 (or $300 + $300 + $250).

Taxpayers will claim the other half of their credit on their 2021 tax returns. Individuals who receive advance credit payments should also receive IRS Letter 6419 in January 2022, which will provide the total amount of the individual’s advance credit payments.

EXAMPLE 2: Same facts as Example 1. In January, 2022, Darla receives Letter 6419, which informs her that the IRS disbursed a total of $5,100 to her via advance credit payments. Darla will claim the other $5,100 of her total child credit on her 2021 tax return. That credit will be fully refundable.

Effect of Advance Credit Payments

The advance child credit payments are not income, they are not taxable, and they will not delay a taxpayer’s refund for the 2021 tax year. They also cannot be counted as income when determining eligibility for or the amount of government benefits or assistance.

The payments cannot be offset to repay the recipient’s overdue child support, taxes or other federal or state debts. However, they are not exempt from private garnishment. In addition, a refund of the credit based on a taxpayer’s 2021 tax return is treated like any other refund. Thus, it may be offset by the taxpayer’s overdue child support and government obligations.

Taxpayers whose advance payments exceed the proper amount of their 2021 child credit may have to repay some or all of the advance payments.

Advance Child Credit When Circumstances Change

The advance credit payments will be based on the taxpayer’s last processed tax return. The IRS encourages taxpayers to file 2020 tax returns as quickly as possible so that their advance child credit payments will be based on more recent information. The IRS may adjust the amount of the monthly payments to reflect the taxpayer’s most recent information.

In addition, the IRS expects to offer a website portal soon for taxpayers to report changed circumstances, such as the birth a qualifying child, or the transfer of a qualifying child’s dependency exemption to another taxpayer. This portal will also allow taxpayers to opt out of the advance payments, and instead claim the full amount of their child credits on their 2021 tax returns.

Advance Child Credit for Nonfilers and Other Underserved Groups

Most taxpayers who file returns do not have to take any further action to receive advance child credit payments. However, the enhanced child credit for 2021 can potentially benefit many people who do not file returns because their incomes are below the filing threshold.

Accordingly, the IRS website offers a Child Tax Credit Non-filer Sign-up Tool for eligible individuals who are not required to file returns. Users who provide the required information do not need to do anything else to receive their advance credit payments. The tool also registers users for Economic Impact Payments of the Recovery Rebate Credit. 

The IRS is taking several actions to reach nonfilers and other groups that might miss out on the credit:

• The IRS is encouraging community groups, employers and others to share information about the enhanced credit and the advance payments so that nonfilers won’t miss out.
• Nonfilers can use simplified procedures to file paper or electronic returns.
• The Federal Deposit Insurance Corporation website offers information on how individuals can open low-cost or no-cost bank accounts that can receive direct deposits of the advance credit payments.

Similar efforts related to the Recovery Rebate Credits and Economic Impact Payments helped lead to more than 8 million returns from individuals who don’t normally file.

By Kelley Wolf, JD, LLM

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