Broker Check
Child Tax Credit Payments: Understanding the “Advance”

Child Tax Credit Payments: Understanding the “Advance”

| August 09, 2021
Share |

The American Rescue Plan Act of 2021 became law on March 11, 2021. One of the most widely publicized benefits of the plan was the expansion of the child tax credit. The expansion of the tax credit includes an increase in the credit amount from $2,000 to $3,600 for a child under age 6 and $3,000 for children under age 18. Credit amounts will be partially made through advance payments through the end of 2021. A few weeks ago, many payments began to show up in bank accounts based on your eligibility as determined by your 2020 tax return. The goal of this advance is to provide families with financial relief now, rather than waiting for the credit in 2022. This credit is fully refundable, which means that low income households will be entitled to the full credit.

 Understanding the “Advance”

When it comes to taking advantage of the advanced Child Tax Credit Payments, it is important to consider the potential tax consequences that could come with it. Prepayments that are being made to recipients are based on the most recent tax filing, which could be 2020 or in some cases, 2019. As time goes on, income can fluctuate, which can impact your eligibility for this credit. In other words, the tax credit can have a substantial impact on your tax return either by reducing your refund or increasing your tax bill based on such factors (number of qualifying children, income, filing status, etc.). The IRS does allow you to access an online portal (Child Tax Credit Update Portal) to adjust your information to make sure that they have the most recent data on file. Any adjustments that you make could reduce the potential for advanced Child Tax credit overpayments, which you would need to pay back in 2022.

While the Advanced Child Tax Credit will be beneficial to many families, it is important to make sure you understand how it works so you are not surprised at tax time. If you have any questions or would like to discuss this in more detail, please feel free to contact Tycor at 610-251-0670 to speak with one of our advisors.

Share |