Starting last July 2021, many families may have noticed that they received direct deposit or were mailed advance Child Tax Credit (the “Credit”) payments from the IRS, as authorized by Congress’ American Rescue Plan.
Millions of eligible families received $300 per child per month for children under age 6, and up to $250 per child per month for children ages 6 to 17, through December 31, 2021.
The base Credit, which families are entitled to annually, was increased in 2021 from $2,000 per qualifying child per year, to a maximum of $3,600 per child per year for children under age 6 and $3,000 per child for children between the ages of 6 and 17.
For those who qualify, the monthly distribution amounts received in 2021 represent half of the total Credit awarded.
The remainder of this fully refundable Credit will be paid upon the filing of 2021 tax returns in 2022.
Income eligibility for this Credit’s advance payment was based upon 2019 or 2020 modified adjusted gross income (“modified AGI”).
Taxpayers may mistakenly assume that the Credit was available only for families with smaller incomes.
The full Credit was available to married taxpayers filing joint (or qualifying widows or widowers) with modified AGI up to $150,000; head of household filers with modified AGI of up to $112,500; and single filers or married filing separately taxpayers with modified AGI up to $75,000.
Taxpayers with income above these thresholds were entitled to a substantial portion of the Credit as well.
However, the Credit is reduced as one’s income increases.
For married filing joint taxpayers (or qualifying widows or widowers), for example, the extra credit is reduced as modified AGI increases from $150,000 to $400,000 (for married filing joint filers) – by $50 for every extra $1,000 in modified AGI.
Similar reductions occur for other types of filers.
The IRS is encouraging taxpayers to check their IRS online accounts (these can be accessed or created at www.IRS.gov) to confirm Credit amounts paid in 2021, particularly if there was a December change in address or bank account.
Online accounts are intended to reflect official figures within the IRS system.
In January 2022, the IRS also began issuing written notifications to Credit recipients reporting the Credit amount paid to them in 2021 and the number of qualifying children used to compute the payments.