Impact of Advanced Child Tax Credit

 

Starting July 15, parents will be eligible to receive a new monthly payment for each child thanks to a new federal law for 2021 that will provide major tax relief for working families. 

The Advanced Child Tax Credit is monthly "advances" on the Child Tax Credit traditionally received on your income tax return  For 2021 only, the amounts have been enhanced and can be received monthly to assist with ongoing monthly expenses.

 If eligible, families may receive half of their annual tax credit money in the form of monthly payments. Parents will receive the other half of the credit when they file their income tax returns.

 

Child Tax Credit: Eligible children must qualify...

  • Must be US citizens, nationals, or resident aliens  with a Social Security number
  • Must have lived with you more than 6 months
  • Must rely on you for over 50% of their support
  • Must be blood kin, adopted or court-ordered custody

Child Tax Credit Amounts:

  •  Maximum of $300 per month for eligible children under 6 years on 12/31/21
  •  Maximum of $250 per month for eligible children under 18 years on 12/31/21

Child Tax Credits are NOT income and DO NOT AFFECT other government benefits such as:

  •  SNAP (food stamps)
  •  Income-based rent assistance 
  •  LIHEAP
  •  Taxable portion of Social Security payments 

Refundability:

  • Credit is fully refundable regardless of tax owed 
  • No minimum earnings requirement 

No reduction for other government-collected debts:

  • Student loan debt
  • Tax debt owed to the IRS
  • Tax debt owed to Pennsylvania or other States
  • Child support debt owed
  • Other government debts owed

NOTE: Nothing prevents private debts from being collected 

Payment Options:

  • ·Electronic Deposit (bank account number and routing number required)
  •  Check (via mail)
  •  Debit card (initially via mail, electronic refill) 

Two IRS Portals (Should Be Active On July 1): 

Registration Portal for those who did not file 2019 or 2020 tax returns because they have

  • No taxable income
  • No requirement to file

  Change in Circumstance Portal:

  • Bank account change
  • Address change
  • Eligible child change (e.g., birth, adoption, custody, death)
  • Income increase into phaseout range

To unenroll from advance payments* https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

* Some taxpayers may choose to unenroll for advance payments if they know they  won’t qualify for the credit in 2021 or prefer to take the full credit on their tax return instead

Recommended Immediate Action Plan:

  • Set up a bank account for direct deposits
  • File 2019 & 2020 tax return if haven’t field yet
  • Enroll/verify/update payment instructions at IRS website when active (July 1)

Everything should happen automatically if 2019 or 2020 tax returns have been filed and CTC was claimed.  

File 2021 tax returns early next year.

If you have questions you can email VITA Lancaster at vita@uwlanc.org or call (717)824-8102; or call MidPenn Legal Services Low Income Taxpayer Clinic at  (844)675-7829.