Child Tax Credits: Why are we getting advance payments?

Starting July 15, most Americans with children 17 and younger will begin to receive monthly Advance Child Tax Credit (CTC) payments. These are exactly what the name implies: Advances on the child tax credit you might normally claim on your tax return. Instead of taking the full credit at tax time, the American Rescue Plan Act (ARPA) of 2021 allows you to take half of it in the form of monthly cash payments over the course of six months.

The purpose is to make the funds available to families now as they work to catch up from lost wages or other unexpected expenses incurred during the pandemic. This applies only to the tax year 2021.

In addition to the advance payment, the CTC is bigger in 2021—from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six—and the age limit increased from 16 to 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent.

Half of the 2021 CTC will be issued in six monthly installments of up to $300 per child beginning July 15 . The other half will still be taken as a credit on federal income taxes filed in April 2022.

Taking advance payments will reduce the amount of credit applied to your taxes and could therefore lead to a higher tax bill or smaller tax refund. If your family doesn’t need the additional funds now, you can sock them away to offset any federal taxes you may owe upon filing your return.

Here are a few frequently asked questions to help you navigate this year’s child tax credit program. The White House created a page with more detailed FAQs.

Am I eligible for these Advance CTC payments?

The IRS describes generally the parameters for eligibility and has set up a few resources on their website, including an “eligibility assistant” tool. For the tool, you will need your tax return filed for 2020, or your 2019 tax return if you haven't filed for 2020. Or you may be able to estimate the total income using income statements such as W-2s and 1099s and any expenses or adjustments to your income.

What if I make too much for the full CTC? Will I still get Advance CTC payments?

You may still get payments; they’ll just be smaller. Married couples with income under $400,000 and families with a single parent (also called Head of Household) with income under $200,000 qualify for at least $2,000 total CTC, half of which comes out to $166 per child each month. Families with even higher incomes may receive smaller amounts or no credit at all.

Can I opt out of these payments if I’d rather claim my full CTC when I file my taxes in April 2022?

Yes. You’ll need to opt out on the IRS’ website. The deadline has passed for opting out of the first payment on July 15, but you can opt out of remaining payments. If you do not already have an IRS.gov user name and password, you will need to set up an ID.me account to sign in and unenroll in Advance CTC payments.

What if I’m a non-filer of federal income taxes? How will the IRS know where to put my advanced credit payments?

If you aren’t required to file a tax return and did not give the IRS your information already for the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool, you will need to enter some basic information into the Child Tax Credit Non-Filer Sign-Up Tool.

What if I want to give the IRS a different bank account from the one that received my Economic Impact Payments?

You will be able to add or change your bank account information on the IRS website in the coming weeks, through the IRS’s Child Tax Credit Update Portal.