The IRS announced that it will begin sending advance child tax credit payments to millions of families on July 15, 2021. These advance payments were mandated by the American Rescue Plan Act (ARPA), signed into law on March 11, 2021. ARPA raised the previous child tax credit of $2,000 per child under the age of 17 to $3,600 per qualifying child under the age of 6 and $3,000 per qualifying child aged 6 to 17. These increased credit amounts are phased out for taxpayers earning over $75,000 ($150,000 for married taxpayers filing jointly, $112,500 for head of household taxpayers).

The IRS will estimate the amount owed to each family based on their 2020 tax return, or their 2019 tax return if a 2020 return has not yet been filed or processed, and payments will be automatically sent as a check or direct deposit. Automatic monthly payments from July through December will total 50 percent of the estimated credit, with the remaining amount claimed upon filing the 2021 tax return.

It is important to note that any amounts provided by the IRS which exceed the amount of credit that the taxpayer is allowed will be added to the 2021 tax liability and must be paid back along with other federal taxes owed. Thus, if your income or dependent status has changed from previous tax filings, you may receive more than owed.

Opting Out of Advance Payments

Taxpayers who do not wish to receive the advance payments, whether for changes in income, status of dependents, or otherwise, will be able to opt out of automatic advance payments in order to avoid having to make a year-end repayment. The unenrollment process will be completed via a tool on the online IRS portal; however, this feature is not yet available as of their June 7, 2021, announcement and any alternate means to opt-out in the meantime have not been provided. A similar tool to be released later in 2021 will allow taxpayers to update relevant income and dependent information on the IRS portal so that they may receive a more accurate monthly credit payment.