Please help me understand the Advance Child Tax Credit

It's an increased credit, so long as you make less than $182k a year combined if married filing jointly. Starts phasing out at $150k combined.

Old credit was $2k/kid. Now it's $3k for kids 6-17 and $3.6k for kids under 6; $150k/under combined.

IF you get the monthly payments, you'll get $1.5k-$1.8k paid in total this year next 6 months, which leaves $1.5k-$1.8k leftover still to take a tax credit on - so if just 1 kid under 6, there's almost no difference for you tax return as the difference would be just $200 on the tax return itself ($2k typically, $1.8k after taking the 6 payments plus remaining credit).

Where it gets iffy is say you have 3 kids, 1 under 6 and 2 aged 6-17. You would get $800/mo ($300 + $250 + $250) for next 6 months, then your credit leftover for tax return would be $4.8k ($1.5k + $1.5k + $1.8K), when normally you'd just get $6k back for 3 kids ($2k each). So now that's a difference of $1.2k, which you might notice.

Also here's a calculator to use to see if you're above $150k combined or $75k single: HR Block link for child tax credit

If you make $182k-$400k combined you just get the old $2k credit, basically. It completely phases out over $440k of combined income.

quote:

---

Lets say I make $50k with 4 children under 6.

I get the $14,400 credit.

However my federal tax liability is only ~$6,800

Do I get to keep the remaining money? Or only the $7,200 that I get until the end of the year.

Is this on top of the $2,000 credit?

---

If you're single (or married) with $50k income and have 4 kids under 6 (good lord)...

You get $1,200/mo in payments for 6 months ($300 * 4 kids) - $7,200 in total payments

You still have a remaining $7,200 of tax credit you can take on your tax return.

So the total is $14,400 like you said, with half paid out in monthly payments and the other half a tax credit on your tax return.

This is replacing the typical $2k credit per child. So come tax time your tax credit is actually decreasing from $8k (4 kids) to $7.2k, but your total overall goes up from $8k to $14.4k in terms of money in your pocket.

quote:

---

This is very confusing to say the least.

---

Not really, it's a refundable tax credit that is being advanced monthly.

You can opt out of it.

I have my $600 pending.

quote:

---

You can opt out of it

---

Have you tried to opt out? It's damn near impossible.

Does anyone have success story, steps to opt out? Expecting little one end of year, be nice to know going forward.

Part of the confusion is due to there being multiple changes happening at once.

Recall that the child tax credit has been at $2,000 / child. This amount phases out as your AGI goes over $200K for single filers / $400K for joint filers. That has not changed.

The changes are as follows:

1) The entire child tax credit is now refundable. This will not impact most MT board members... it simply means that if your tax credit exceeds your tax liability, you can now get all of the credit. Previously, there was a limit.

2) For those of you with single AGI below 75K and joint AGI below 150K, for 2021, the child tax credit has been "enhanced" to 3K per child. If your child will be below the age of 6 for ALL of 2021, the credit is enhanced to $3,600. This enhancement phases out at income levels above 150K/75K, until the entire enhancement phases out. At that point... one is back to getting the 2K per kid.

So there will be people in the middle - they will not get any of the enhancement, but will still get the "original" 2K per child credit.

3) For those people with 2020 AGIs below 150K/75K, or 2019 AGIs below those levels if you have not yet filed 2020 tax return, the credit is now advanced. By that, you will get the credit in monthly payments, INSTEAD of getting the credit on your tax return. However, because this new rule was not passed by congress until well into 2021, and because the IRS needed time to set this up, these monthly payment did not begin until July 15th.

The net impact of this mid-year start is that only half of your PROJECTED 2021 child tax credit will be advanced... the other half will be still claimed on your 2021 tax return. This advance payment is based on your entire projected 2021 credit... not just the enhancement.

Please note that the enhanced credit - and the advance payment - are for 2021 only... at this time.

The advance payments are not "taxable", however, there is a reduction of the credit you would receive on your tax return if the advance did not happen.

So here is the problem. Tax situations can change from year to year. Perhaps you will have a kid in 2021. Perhaps you are divorced and alternate claiming the kid - you claimed the kid in 2020 but your ex will claim in 2021. Perhaps you will make more money in 2021.

When you file your 2021 tax returns, you will need to reconcile any advance payments you received - to the total amount of the credit you actually "earned". Said another way... the total amount of the credit you actually earned will be reduced by the amount of the advances you received. This is where trouble can appear for someone who is not prepared.

Let's say you have two kids you claimed in 2020, ages 8 and 11, and you file single and your 2020 income was $70,000. Your "projected" 2021 credit is $6,000 ($3,000 x 2). You get $3,000 in advance payments.

But... in 2021, your ex claims the 12 year old, and your income goes up to $78,000. Your 2021 actual credit turns out to be $2,850 (you lose $3,000 for one child, so your credit is now $3,000, and you lose $250 of credit in the phase-out because you made more than $75K in 2020).

So your credit amount is $2,850. But... you were paid $3,000. So when you file your tax return, not only will you not take any credit on your return, but you also will owe $150 back.

If you were not paying attention during 2021 and assumed your tax return would have a $2,000 credit - that you were depending on and you had adjusted your withholding to reflect that - you would be in for a surprise at tax time.

Now... you DID get $3,000 throughout the year that you were also not expecting. Hopefully you saved some of this.

Because of these situations, the IRS created a portal that would allow one to "opt-out" of getting advance payments, thus pushing the entire credit (whatever amount it turns out to be) to your 2021 tax return. The portal also, eventually, will allow you to update your 2021 estimated income, number of kids, etc, and the advance credit payment can adjust based on that... to try to prevent surprises at tax time.

As many have stated... the portal is... well... it doesn't work very well. It has a lot of errors. Such is what happens when an overburdened, underfunded, and way under technology, government agency tries to do something new like this on top of their other responsibilities.

Sorry for the length but this is complex.

quote:

---

Is their anything I can do if I had a kid in May to get him added and get some more $$$?

---

At some point in the future, the portal is supposed to allow this and you would get the advance payments for the rest of the year. I've heard this will be made available likely in August.

If you are unable to get the advance, though, you would just get the full amount when you file your 2021 return (assuming you otherwise qualify).

I think most of it is due to not understanding the rule fully. But it seems like the vast majority of my feeds folks want to opt out. Which I don’t really understand being afraid of the tax implications because if you’re getting the $$ it’s because you have kids and are getting the credit. It’s not like all of a sudden extra taxable income.

I know in the examples above I see how you could come out “behind” on what you end up being able to deduct tax wise come filing time, but, you already got the way more than that advanced to you.

So I don’t know why anyone would opt out frankly who is due to get it.