Advance Child Tax Credit Payments: What You Need to Know

Taxpayers with children may have recently noticed an increase in their checking accounts. This is likely due to a bonus from the government. The first child tax credit payments went out earlier this month. They’re yet one more form of supplemental income implemented to help families recover from the pandemic. Many eligible families just received their first payment with others to follow throughout the rest of the year.

Some families happily accept the money and move on. Others are a little skeptical. Do they have reason to be? Here’s what you need to know.

What Is This Payment?

Advance child tax credit payments are part of an expanded program implemented by the government. It pays families one-half the credit they would typically claim per child on their income taxes, but it pays this half in installments beginning in July and running through December. Rather than waiting to claim the deduction for children on taxes next April, taxpayers are receiving that money now through these payments.

For many eligible families in tax year 2021, this advance credit may be as much as $3,600 for each child under the age of 6 (up to $300 monthly) and up to $3,000 for each child 6-17 years old (up to $250 monthly). Many struggling families are grateful for this cash infusion. But as with other stimulus-related payments from the government, there are aspects that could trip you up at tax time if you’re not paying attention.

Things to Know

Here are a few things to be aware of if you’re receiving these supplemental payments.

• If you get more than you’re eligible for, you’ll have to pay it back. This is different from previous stimulus payments. There are a few provisions for families with incomes under a certain threshold.

• Those who share custody of children need to beware. The child tax credit payments will automatically go to whoever claimed the child(ren) on their taxes in 2020. Those who are alternating claiming this deduction may find themselves in a kerfuffle come tax time if it’s the other parent’s turn to claim the deduction.

• Those whose income goes up substantially this year over last may be receiving too much money in advance payments. Higher income equals lower eligibility for child tax credits. If you receive more than you’re due, you’ll have to pay it back at tax time.

• Self-employed workers may have a challenge at tax time because of these advance child tax credit payments. If you’re making estimated payments based on last year’s income, the advance payments could cancel those out to some degree, meaning you may end up owing more taxes than anticipated. You could even incur interest and penalties.

Here’s How to Manage All This

If you’re uncertain of how all this will impact you at tax time next year, talk with your accountant. They can help you determine the full impact of these advance child tax credit payments on your tax liability for 2021.

If these payments will put you in a bind, there is a way to opt out of them. To do so, visit the Child Tax Credit Update Portal and follow the directions for opting out of receiving these payments. The deadline for opting out of the August payment is August 2. If you hurry, you can still make it!

Adams Accounting Solutions Keeps Track of All This and More 

We know how confusing all this can be. We’re here to help. If you have questions about how the advance child tax credit payments work, give us a call. We’ll review your specific situation and offer advice to put you in the best possible position come tax time. Give us a call at 913-888-9100 today!