In the COVID Tax Tip 2021-117, the IRS reminds and clarifies advance child tax credit information to the taxpayers.
Note that the advance child tax credit is an early payment on potential tax credits (these are estimates) to be claimed on their 2021 tax return during the 2022 tax filing season (January to April 2022). The IRS has started disbursing these advance payments from June-July 2021 and will continue until December 2021.
Who is a qualifying child for the purposes of the advance child tax credit payment?
For tax year 2021, a qualifying child is an individual who does not turn 18 before January 1, 2022, and meets these requirements:
- The individual is the taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or a descendant such as a grandchild, niece, or nephew.
- The individual does not provide more than one-half of his or her own support during 2021.
- The individual lives with the taxpayer for more than one-half of tax year 2021.
- The individual is properly claimed as the taxpayer’s dependent.
- The individual does not file a joint return with the individual’s spouse for tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid.
- The individual was a U.S. citizen, U.S. national, or U.S. resident alien.
What should someone do if they don’t want to receive advance child tax credit payments?
Anyone who does not want to receive monthly advance child tax credit payments because they would rather claim the full credit when they file their 2021 tax return, or because they know they will not be eligible for the credit in 2021 can unenroll through the Child Tax Credit Update Portal. People can unenroll at any time, but deadlines apply each month for the update to take effect for the next payment.
For people married and filing jointly, they and their spouse must unenroll using the Child Tax Credit Update Portal. If only one person unenrolls, they will still receive half the normal payment. Similarly, if you are changing bank account information, both of you must make the update so both halves of your payment go to the new account.
We recommend to our clients to keep track of all the payments received if you choose to unenroll and you might have to clarify with the IRS the timing of some payments received before the unenrollment took place in the IRS system.
Will receiving advance child tax credit payments affect other government benefits?
No. Advance child tax credit payments cannot be counted as income when determining if someone is eligible for benefits or assistance, or how much they can receive, under any federal, state or local program financed in whole or in part with federal funds. These programs cannot count advance child tax credit payments as a resource when determining eligibility for at least 12 months after payments are received.
Are advance child tax credit payments taxable?
No. These payments are not income and will not be reported as income on a taxpayer’s 2021 tax return. These payments are advance payments of a person’s tax year 2021 child tax credit.