What Are Monthly Advance Child Tax Credit (CTC) Payments?

Do you have children younger than 18? There are changes to the Child Tax Credit this year that you might want to know about! 

Beginning July 15 through December 2021, tens of millions of eligible American families will receive monthly payments that amount to half of the total amount the IRS estimates that the families will receive for the 2021 Child Tax Credit. The advance monthly payments (currently only apply to the 2021 tax year) are part of the American Rescue Plan, passed by the Biden Administration in March, to provide economic relief and help Americans recover from the COVID-19 crisis.

Do you have questions? Here are the five most common questions (and answers) about the Child Tax Credit and how it may impact you and your family:

1.) Who’s eligible for the advance Child Tax Credits? 

Eligible families will receive letters from the IRS with detailed information about the monthly payments. Children must be younger than 18 years old to qualify parents for the monthly payments. Some important qualifications to keep in mind:

• Residency: At least one parent who intends to utilize the credit must have their main home, for more than six months a year, in one of the 50 states or the District of Columbia. 
• Married couples: Couples who file jointly and have an income of less than $150,000 are eligible for the full credit amount. 
• Widow(er)s: Qualifying individuals in this category also have an income threshold of $150,000 for the full benefit. 
• Individual filers who are heads of household: The income threshold for individual parents who are heads of household and do not fall within the above categories is $112,500. 
• All other individual taxpayers: The threshold is $75,000 for other cases not described above.

Families or individuals that make more than the applicable income thresholds are subject to a phaseout of the credit, reduced by $50 for each $1,000 (or fraction of this amount) that they make over the limits. For information on the first and second income-based phaseouts and full eligibility information, visit the IRS website. 

2.) How much are the advance Child Tax Credits? 

In simple terms, the advance Child Tax Credits are portions of the Child Tax Credit a parent might expect to receive on their 2021 taxes. Payments between July and December will amount to roughly half the estimated total credit. When a parent files their taxes for the 2021 tax season, they will be able to claim the remaining portion of the credit, if they are eligible.

Like other tax credits, the final amount will be based on your 2021 tax return. The advance payments are estimates based on 2020 or even 2019 tax returns. In general, here is what payments look like for those who are eligible: 

• For each child younger than six years old, eligible families will receive up to $300 per month ($1,800 per six-month payment period). 
• For each child between the ages of six and 17, families will receive up to $250 per month ($1,500 per six-month payment period). 

3.) How do I receive the advance Child Tax Credits? 

Families that filed tax returns in 2019 or 2020 and claimed the Child Tax Credit, don’t need to take any action to receive the payments according to the IRS. Similar to stimulus checks, the payments are slated to be automatically deposited into accounts on file with the IRS (think where your tax refund amount is deposited). This is also true for families that gave the IRS information in 2020 to receive the stimulus payments. 

The IRS will also give eligible families that weren’t required to file taxes for the 2020 tax season the opportunity to file a simplified return, register for the advance Child Tax Credits and third stimulus check, and claim the 2020 Recovery Rebate Credit with an online Non-Filer tool. There will also be an online portal to update income, filing status and number of children. 

While our customers may be recipients of these advance Child Tax Credit payments, it’s important to remember that any questions or concerns should be addressed to the IRS. Visit IRS.gov to contact the agency. 

4.) Are there risks to receiving the advance Child Tax Credits? 

• If the IRS overestimates the monthly payments, the excess Child Tax Credit amount may be due during the 2022 tax filing season. Talking to your accountant or a tax professional is best to ensure everything with your taxes is correct. 
• Families can unenroll from the advance Child Tax Credits if they so choose. 
• The credits do not impact eligibility for government benefits or assistance. 
• The IRS will not reach out to request personal or financial information regarding the tax credits. Be mindful of scams!

5.) Can you share some ideas of how my family might use this money?

If your family does not need to use the credits on immediate bills or necessities, there are a number of ways you may want to allocate those advance tax credit payments:

• Save for your child’s education: Whether in a traditional savings account or a tax-advantaged 529 savings plan, there are many ways to start saving for your child’s future education. 
• Save for other family needs or emergencies: Repairs to the family car or other household emergencies can pop up and well-funded emergency savings can help alleviate the financial pressures these situations can cause.
• Work with your child on a savings/budgeting plan: Figuring out a plan does not have to be parents’ work alone - getting your child involved with planning how to save or spend this money can teach them valuable lifelong financial skills. We have some ideas to get you started here and here!  

What Types of Savings Accounts Are Out There? 

These credits, though they may automatically appear in your account if it is on file with the IRS, are an IRS program and the IRS website may answer remaining questions you have about these tax credits, including eligibility, how to update information and more.