On July 15th, 2021, the IRS began sending out the first round of Advance Child Tax Credit (ACTC) payments. These payments were designed as a prepayment method of the previously announced Child Tax Credit that was initially supposed to be provided to eligible families during tax season.
In this article, we’ll look at what the Advance Child Tax Credit is, what steps you need to take to receive it, and some of the limitations that may keep you from receiving your ACTC payout.
Before applying to receive the credit, be sure to consult a seasoned tax professional. We recommend doing this because there are applicable fines for applying for and/or taking the credit when you are not eligible for it. A tax consultant will help you analyze your situation and determine if you qualify for ACTC.
You can also read the article Hoosier families celebrate advance Child Tax Credit payments ahead of July 15 rollout, where Sherry Borshoff shares some advice with Fox 59 on the tax credit.
What is the Advance Child Tax Credit?
Following the recently released stimulus checks, the United States government announced it would be providing a tax credit for families with small children as a financial booster. Initially, this tax credit was intended to be released during tax season as either a credit that would reduce your tax bill or result in a tax refund.
Each of these credits was determined to be $2,000 per qualifying child as a tax credit or $1,400 per qualifying child if you were eligible for a tax refund.
However, the government has recently decided to make these Child Tax Credit payments available throughout the year instead. Like the initial Child Tax Credit, you must meet specific requirements to receive the advance monthly payments, and we highly recommend taking the credit if you are eligible.
Who can claim the Advance Child Tax Credit?
United States citizens and resident aliens are eligible for the credit so long as they have an eligible child. However, the IRS has specific guidelines set forth for what determines whether a child can qualify. To be considered eligible, your child must meet each of the following six (6) requirements:
The age requirement states the child must be 16 years or younger by the end of the following tax season.
The relationships eligible for qualification include the following: daughter, son, stepdaughter, stepson, brother, sister, foster child, stepbrother, stepsister, or any descendant of the previous.
The child may not support themselves more at more than half capacity during the fiscal year.
The child must be claimed as a dependent on your annual tax return.
The child must be a legal citizen, legal national, or resident alien.
The child must live with you for more than one-half of the year (some exceptions apply).
For further information on eligibility requirements, visit the IRS’s guide on the ACTC or contact Borshoff Consulting using the form at the bottom of this page.
What do I need to do to claim my payments?
Most of the time, you do not need to do anything to receive your ACTC payments. For most eligible parties, the IRS will use the banking information and/or payment preferences from the last time you filed your taxes and send the payments to you accordingly.
For some, this might mean receiving a check in the mail. For others, it could be a direct deposit to your bank account.
However, if you have not filed taxes for the last few years (2019 and 2020), you will need to sign-up for the credit using the IRS’s non-filer sign-up tool.
What do I do if I want to opt out?
For most people, receiving the Child Tax Credit throughout the year sounds terrific, but some of you may want to opt out of advanced payments so that you can claim it all at once on your tax return at the end of the year.
Luckily, doing this is very easy.
All you have to do to opt out of the advanced payments is visit the Advance Child Tax Credit Update Portal (ACTC-UP). Log in using basic information like your birth date and social security number, and then simply update your preferences.
Is the ACTC taxable?
The short answer here is no. The money being paid out to you is considered part of the economic impact payments and is not considered income. Because of this, it is not a taxable source.
Can I call to update my banking information with the IRS?
Because of increased call volume, the IRS has issued a statement warning people not to call to update their banking information, or they may experience long wait times. Instead, use the ACTC-UP website listed above to change any necessary information such as your address or banking info.
What are the income restrictions for the ACTC?
As with most government payments, certain income restrictions prevent some families from receiving the ACTC. The information below outlines those income restrictions:
For Single Filers:
The maximum adjusted gross income (AGI) for single filers to receive the ACTC is $200,000 for 2020. Past this level, the ACTC is reduced by $50 for each $1000 you are over. This reduction policy applies to all filing statuses.
For Head of Household Filers:
For HOH (Head of Household) filers, the AGI must be at or below $200,000 in 2020.
For Married Filing Jointly:
For married couples filing together, the AGI must not exceed $400,000 in 2020.
For Married Couples Filing Separately:
For married couples filing separately, the maximum allowed AGI is $200,000 in 2020.
Keep in mind that you may not receive the payment from the IRS if you owe a certain amount of back taxes or child support. For this credit to be paid out to you, the credit must exceed the amounts owed in those areas.
If you have any questions regarding the Advance Child Tax Credit that were not answered in this article or need help filing your tax return, Borshoff consulting is here to help.
It’s normal to feel overwhelmed and unsure when the IRS throws curveballs at you like tax credits and economic impact payments. We can assist you in all of these areas and more to make sure you receive the money you’re owed without accidentally filing for any amount of money that you’ll have to pay back in the long run.
As always, we recommend consulting a tax professional for all tax-related matters. At Borshoff consulting, we offer individual consultations for all tax-related inquiries. Contact us and book your consultation today!