The 2021 Advance Child Tax Credit: Explained
If you found yourself surprised to see a small lump of unexpected cash appear in your bank account this past month, you might be the recipient of the Advance Child Tax Credit. But what is it exactly? Let's break it down.
What is the Advance Child Tax Credit?
Every year, when parents file taxes, they might be eligible for the Child Tax Credit, which can put some extra dollars in their wallets. How much of a credit you get depends entirely on your taxable income, which varies from household to household. During the COVID crisis, the Biden Administration released the American Rescue Plan Act (ARPA) for 2021, which expanded this tax credit for the year 2021 only. The intention is to put money in the hands of parents on a monthly basis to cover a range of expenses such as groceries, rent, medications, education, and childcare to name a few. It is estimated that as many as 65 million kids in the US will benefit from this program.
How does the credit work?
Based on your last tax filing, the IRS is taking what they estimate your 2021 Child Tax Credit will be and then breaks that is half and saves one half to give you in full when you file your taxes in 2022. The other half gets broken up into monthly payments that automatically appear in the bank account listed on your IRS tax forms. Families can expect up to $300 per child ages 5 and under and up to $250 per child ages 6 to 17
Those payments will appear in bank accounts on a set schedule; here are the dates for the remainder of 2021 when you can expect to see the ACTC appear in your account:
- August 13th
- September 15th
- October 15th
- November 15th
- December 15th (final check)
Who is eligible for the Advance Child Tax Credit?
Couples making less than $150,000 and single parents making less than $112,500 qualify for the ACTC. Families making higher incomes will see less of the credit or no credit at all. To know if your family qualifies, check out this FAQ from the White House.
What if I don't file taxes?
If you don't file taxes or haven't for a long time, you're considered a "non-filer," and you are still eligible to receive payments. Simply use the IRS sign up tool to get started.
What if I haven’t given birth yet?
You aren’t eligible if your child hasn’t arrived yet; however, if your little one makes their debut on or before December 31st, 2021, you’ll be entitled to the entire 2021 tax credit. You’ll receive any subsequent payments monthly, but any of the payments sent before your child’s birth will be sent in a lump sum with your tax return in the spring (so, for example: a family that has a baby born in October 2021 should receive monthly payments in November and December, but they’ll receive the sum of their July–October payments with their tax return). Unfortunately, if you have a 2022 due date, you’re out of luck, unless the White House decides to extend this benefit.
Are there any reasons why I should opt out of receiving the Advanced Child Tax Credit?
Not all families will want to receive monthly ACTC payments. Three possible reasons may be:
- Your estimated payments are based on tax information from your last known taxes filed. If your finances have significantly changed, you will need to update the IRS, and in some cases, you may choose to opt out.
- Some families prefer the complete, one-time payment after filing taxes.
- These prepayments are not taxable income or a tax deduction.
It is important to note that you are not turning down the credit if you opt out of the monthly prepayments. When you file your taxes in 2022, you will receive a lump sum of the ACTC.
If you choose to opt out, there are deadlines. Below are the deadlines to opt out:
- For September, opt out by August 30
- For October, opt out by October 4
- For November, opt out by November 1
- For December, opt out by November 29
You will only need to opt out once to stop receiving monthly prepayments. To opt out, follow this link.
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Disclaimer: The information on our site is NOT medical advice for any specific person or condition. It is only meant as general information. If you have any medical questions and concerns about your child or yourself, please contact your health provider.