The IRS has published a webpage to provide guidance to taxpayers on advance child tax credit (CTC) payments in 2021.
Taxpayers are allowed a CTC—temporarily expanded and made refundable for 2021 by the American Rescue Plan Act for each qualified child. The credit phases out for taxpayers with adjusted gross incomes (AGIs) over certain thresholds.
For 2021, a qualifying child with respect to a taxpayer is defined as an under-age-18 child, whom the taxpayer may claim as a dependent (i.e., a child related to the taxpayer who, generally, lived with the taxpayer for at least six months during the year), and who is a U.S. citizen or national, or a U.S. resident.
The IRS is required to establish a program to make periodic advance payments which in total equal 50% of IRS's estimate of the eligible taxpayer's 2021 CTCs, during the period July 2021 through December 2021. (Code Sec. 7527A)
IRS has announced that advance payments of the CTC will be made regularly from July through December 2021 to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50% of the CTC. Advance payments will be estimated from information included in eligible taxpayers' 2020 tax returns (or their 2019 returns if the 2020 returns are not yet filed and processed).
Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.
Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. The IRS says more details on how to take these steps will be announced soon.
It is still unclear what repayment requirements may be enforced, but a limited safe harbor may be available to low-income taxpayers. Without that, the Advance Payments should be considered an advance of the Child Tax Credit – which typically reduces taxpayers’ taxes owed. This could result in repaying an advance if children’s eligibility changes or owing more taxes due to CTC being received in advance instead of reducing taxes.
The IRS says it will provide more information about advance payments soon.
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