Child Tax Credit: What you need to know

What is the Child Tax Credit?

The child tax credit is a tax benefit granted to American taxpayers for each qualifying dependent child. Designed to help taxpayers support their families, this credit has been greatly expanded by the American Rescue Plan Act of 2021. The child tax credit decreases taxpayers’ tax liability on a dollar-for-dollar basis. The recent legislation increased the maximum annual credit from $2,000 per child (under age 17) in 2020 to $3,000 per child (under age 18) or $3,600 (children younger than 6) for 2021. In addition, the 2021 child tax credit will be distributed to eligible taxpayers in advance payments on a monthly basis starting this month.

Should I opt out of the advanced monthly payments?

We know you want a firm answer of yes or no, but unfortunately the answer is not that easy or straightforward. Feel free to give us a call if you would like to discuss your individual situation.

If you don't opt out of this advanced credit and your eligibility changes, you may end up having a balance due when you file your return. However, if you opt out of the monthly payments, you will be able to still receive the full tax credit based on your 2021 income when filing your income tax return.

Action Item for August:

OPT OUT: Families can opt out of the August payment until Aug. 2. If you want to opt out of the monthly payments and claim your full amount when you file your tax return, you can unenroll on the child tax credit update portal.

OR KEEP A RECORD: If you choose to accept the advance payments it is your responsibility to track how much you have accepted and provide that to us with your tax records next year. This information will be vital to preparing your taxes correctly next year. To assist in the tracking of these payments we have created a handy one pager to record the amount you received each month. You can download this handy form here.