2021 Advance Child Tax Credit – What You Need to Know
For many eligible families, direct deposits or checks were sent out in July 2021 and will continue monthly. This payment is up to $300 per month for kids under 6 and $250 per month for kids 6-17 years old. Many struggling families are grateful for the monthly payments, but just like the other stimulus-related payments from the government, this must be accounted for on you 2021 tax return. The payments will probably lower down your refund or could even cost you significant dollars at tax time.
The Child Tax Credit was $2,000 per child and has been raised to $3,000-$3,600 (dependent on age and of course income).
The monthly payment is an advance on the credit. This means at tax time, if a family received all payments during the year, they will receive less at tax time with their refund.
To add to the confusion, if you get more than you’re eligible for, then you will have to pay it back.
Those who share custody of children need to be very careful, especially in the cases where the child moves back and forth between returns (even / odd years). The credit will automatically go to whoever claimed the child(ren) on their taxes in 2020. Those who are alternating and do not claim the kids in 2021 will then owe the advance back with their tax return.
Only one parent can claim the credit for each child. It cannot be split.
If you believe you will owe the payments back, or generally owe money and do not want to owe more at tax time, there is a way to opt out of the credit. To do so, visit the Child Tax Credit Update Portal and follow the directions for opting out of receiving these payments.
The deadline to opt out for the month is around the 1st of each month as the payments go out on the 15th.
If you have not received the advance on the credit and you are eligible, then the credit will be added on to your 2021 tax return. You are not losing the credit. It is just delayed.
Keep in mind that the amounts received during the year will need to be provided to your accountant at tax time as the credit will have to be reconciled. If the advance reported is not correct, then your return will be held up.