What You Need to Know about The Advance Child Tax Credit

What You Need to Know about The Advance Child Tax Credit

The American Rescue Plan Act (ARPA) of 2021, which came into effect in March of this year, includes the Child Tax Credit (CTC). The ARPA made significant changes to the CTC for the 2021 tax year which will make it easier for many families to receive advance payments.

The amount of the credit increased from $2,000 to $3,000 for each child under age 17 and to $3,600 for children under the age of 6 years. The amendments to the CTC apply to the 2021 taxation year only.

The Advance Child Tax Credit payments are considered an advance on your CTC claim for 2021. These payments are advance payments from the IRS which is 50 percent of the estimated Child Tax Credit amount that you could claim on your 2021 tax return for the 2022 tax filing period. Thus, on the tax return you file for 2021 taxation year, you will not receive the full CTC because you have received 50 percent of it in advance. The IRS will pay 50 percent of the total credit amount on a monthly installment starting July 15, 2021, through December 2021. The payment will be made via direct deposit through the banking information you provided to the IRS and will be utilizing your 2020 and 2019 returns.

Common Question:

Can I opt out of this advanced credit?

If you opt-out of receiving these advance payments because you believe that the total deduction could be more useful at the time of filing a tax return next year than receiving payments now, you can unenroll through the CTC Update Portal (CTC UP).

The CTC UP allows you to unenroll before the first advance payment of the Child Tax Credit.

Since Advance CTC payments do not constitute income and will not be reported on your 2021 income tax return. In short, the Advance Child Tax Credit is not taxable. The total amount of the advance Child Tax Credit payments that you will receive during 2021 will be based on IRS’s estimate of your CTC for the year 2021. If the total amount is more than the amount of the Child Tax Credit you are entitled to claim in your 2021 tax return, you may be required to refund the excess amount on your 2021 tax return in the 2020 tax filing period.

Who should Opt-Out of the Advanced Child Tax Credit?

  • Their income in 2021 is too high to qualify them for the credit.
  • Someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021.
  • Their main home was outside of the United States for more than half of 2021.


2021 Child Tax Credit and Advance Child Tax Credit Payments Frequently Asked Questions – (https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-frequently-asked-questions)

Five Facts About The New Advance Child Tax Credit – (https://www.forbes.com/sites/juliejason/2021/06/26/five-facts-about-the-new-advance-child-tax-credit/?sh=e8075573562c)

 Photo Credit: Intuit Turbotax Blog

If you have more questions, use the contact form below and we would be happy to assist.

BSH Accounting is a Dallas Tax, Bookkeeping, and Accounting Firm that specializes in efficient advisory services for small business owners. Although we are a Dallas Accounting Firm, we have clients all over the United States.

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