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Starting July 15th, monthly Child Tax Credits (CTC) will go out to U.S households. The American Rescue Plan increased the credit from $2,000 to $3,000 for children aged 6 to 17 and $3,600 for children under 6.

Per the IRS website, they will pay half the total credit amount in advance monthly payments. Those who are eligible will claim the other half when they file their 2021 income tax return.

What You Need to Know

To receive the full CTC, the taxpayer’s adjusted gross income (AGI) must be less than $75,000 for single filers and $150,000 for married filers.

Congress directed the IRS to use taxpayer’s 2019 or 2020 tax return information for payment calculations. However, the payments are based on the taxpayer’s 2021 income.

The IRS has opened a CTC portal to view eligibility, view your enhanced payments, or opt-out of receiving the advanced payments.

If your AGI was close to the limits in 2019 or 2020 or you expect to have an AGI greater than the CTC phaseout, you may want to have a conversation with your tax professional to determine if you should opt-out of the advanced credit.

Why You May Want to Opt-Out of the Advanced Payments

You’re a married taxpayer with three children ages 3, 7, and 10. The IRS is using your 2019 income because you filed an extension in 2020. Your 2019 return shows an AGI of $140,000. Your expected AGI for 2021 is $180,000.

Based on your 2019 AGI, you are eligible for a CTC of $9,600, with a portion of the credit coming in monthly payments starting in July.

However, because your 2021 income exceeds the advanced CTC threshold, you are ineligible for the full credit and may have to pay back any excess credit received when you file your 2021 return.

If you’ve historically received the Child Tax Credit and your AGI is close to the income limitations, have a conversation with your tax professional to avoid an unexpected tax bill – or, create a tax plan to keep your AGI below the threshold so you’re eligible for the full credit.