How the Child Tax Credit Advance Payments could reduce refunds on 2021 Tax Returns

There are many changes to the Child Tax Credit (CTC) for the tax year 2021, but the biggest changes are that the amount has been increased by $1,000 ($1,600 for children under 6 years old) for children ages 6-17, and the IRS will be sending advance monthly payments to taxpayers starting July 15th. Most taxpayers will receive $1,500 of the total $3,000 credit in cash before year end, the remaining $1,500 will be claimed on the taxpayer’s 2021 tax return. Comparing the CTC that will be claimed on the taxpayer’s 2021 tax return to the amount that was claimed on the 2020 tax return of $2,000 results in a lower refund of $500 per child. For many taxpayers the smaller refund will not be a big deal. But it is something that the taxpayer should be aware of when it comes to deciding if they should opt out of the advance payments.

For more information on the Child Tax Credit, see our resources page.