“Plus-Up” Stimulus Checks Have Already Been Sent to 9 Million Americans – Will You Get One Too?

If you already received a third stimulus check, you might find an additional check from the IRS in your mailbox in the coming weeks – especially if you filed your 2020 tax return close to the May 17 deadline. The IRS is calling these extra checks “plus-up” payments, and more than 9 million Americans have already receive the supplemental payment. Over 900,000 plus-up payments were sent in just the last six weeks, and more of them will be sent in the weeks and months ahead as the IRS continues to process 2020 tax returns. The big question is: Will you get one?

The IRS is sending plus-up payments to people who received a third-round stimulus check that was based on information taken from their 2019 federal tax return or some other source, but who are eligible for a larger payment based on a 2020 return that is filed and/or processed later. This could happen, for example, if you had a new baby last year that is reported as a dependent for the first time on your 2020 return (see below for other possible reasons).

So, if you recently filed your 2020 return, you might get a plus-up payment soon. If you requested a filing extension and haven’t filed your 2020 return yet, there’s an extra incentive to get it done quickly (i.e., not waiting until October 15 to file your return). Your 2020 return must be filed and processed by the IRS before August 16, 2021, if you want to get a plus-up payment. That means you still have time to act if you got an extension – but not too much time! Plus, the sooner you file your return, the sooner you’ll get your “plus-up” payment (plus any other tax refund the IRS owes you).

How Stimulus Payments Are Calculated

Most eligible Americans have already received their third stimulus check. The “base amount” is $1,400 ($2,800 for married couples filing a joint tax return). Plus, for each dependent in your family, the IRS adds on an extra $1,400. Unlike for previous stimulus payments, the age of the dependent is irrelevant.

However, third-round stimulus checks are then “phased out” (i.e., reduced) for people with an adjusted gross income (AGI) above a certain amount. If you filed your most recent tax return as a single filer, your payment is reduced if your AGI is over $75,000. It’s completely phased-out if your AGI is $80,000 or more. For head-of-household filers, the phase-out begins when AGI reaches $112,500 and payments are reduced to zero when AGI hits $120,000. Married couples filing a joint return will see their third stimulus check drop if their AGI exceeds $150,000 and completely disappear when AGI is $160,000 or more.

The IRS looks at your 2019 or 2020 tax return to determine your filing status, AGI, and information about your dependents. If you don’t file a 2019 or 2020 return, the IRS can sometimes get the information it needs from another source. For instance, it got information from the Social Security Administration, Railroad Retirement Board, or Veterans Administration for people currently receiving benefits from one of those federal agencies (although the IRS may not have gotten all the information it needs to send a full payment). If you supplied the IRS information last year through its online Non-Filers tool or by submitting a special simplified tax return, the tax agency can use that information, too.

If your 2020 tax return isn’t filed and processed by the time it starts processing your third stimulus check, the IRS will base your payment on your 2019 return or whatever other information is available. If your 2020 return is already filed and processed, then your stimulus check will be based on that return. If, however, your 2020 return is not filed and/or processed until after the IRS sends your third stimulus check, but before August 16, that’s when the IRS will send you a plus-up payment for the difference between what your payment should have been if based on your 2020 return and the payment actually sent that was based on your 2019 return or other data.

(Note: The IRS has had tax return processing delays this year. So, even if you submitted your 2020 return before your third stimulus check was sent, your stimulus payment still might be based on your 2019 return because your 2020 return wasn’t processed in time. Returns filed electronically are generally processed faster than paper returns.)

If for some reason you don’t get a plus-up payment, you’ll still get your money if a payment based on your 2020 tax return is higher than the payment you actually received – but you’ll have to wait until next year to get it. In that case, you can claim the difference as a Recovery Rebate credit on your 2021 tax return, which you won’t file until 2022.

[Use our Third Stimulus Check Calculator to compare your payment if it’s based on your 2019 return vs. your 2020 return. Just answer three easy questions to get a customized estimate.]

Who Will Get a Supplemental “Plus-Up” Payment

Again, you’ll only get a supplemental “plus-up” payment if you received a third stimulus check based on your 2019 tax return or other information, but you would have gotten a larger check if the IRS based it on your 2020 return. So, who falls into this category? Of course, it depends on your specific circumstance. However, to give you a general idea, here are a few examples of hypothetical taxpayers who should get a plus-up payment.

You Had Less Income in 2020 Than in 2019: Kay was unemployed for much of 2020. As a result, her AGI dropped from $78,000 in 2019 to $40,000 in 2020. Kay received a $560 third stimulus check that was based on her 2019 return (she is single with no dependents). Since her 2019 AGI was above the phase-out threshold for single filers ($75,000), her payment was reduced. Kay later files her 2020 tax return, which is processed before August 16, 2021. Since Kay’s 2020 AGI is well below the applicable phase-out threshold, her third stimulus check would have been for $1,400 if it were based on her 2020 return. As a result, Kay will receive a $840 plus-up payment ($1,400 – $560 = $840).

You Had a Baby in 2020: Josh and Samantha had their first child in 2020. They’ve been married for five years, and they file a joint return each year. Their AGI was $110,000 in 2019 and $120,000 in 2020, which are both below the phase-out threshold for joint filers ($150,000). The IRS sent Josh and Samantha a $2,800 third stimulus check based on their 2019 return. They filed their 2020 tax return before the IRS sent the payment, but the return was not processed until a week after the payment was sent. That’s why the payment was based on their 2019 return. Since Josh and Samantha claimed their new bundle of joy as a dependent on their 2020 return, their stimulus check would have been for $4,200 if it were based on their 2020 return (i.e., they would have received an additional $1,400 for their baby). As a result, the IRS will send Josh and Samantha a $1,400 plus-up payment ($4,200 – $2,800 = $1,400).

You Got Married in 2020: Patty and Greg were married in 2020. They had a combined AGI of $150,000 in 2020 and have no dependents. In 2019, as separate single filers, Patty had an AGI of $72,000 and Greg had an AGI of $78,000. The IRS sent Patty a $1,400 third stimulus check based on her 2019 return. Since her 2019 AGI was below the phase-out threshold for single filers ($75,000), her payment was not reduced. The IRS sent Greg a $560 third stimulus check based on his 2019 return. Since his 2019 AGI was above the phase-out threshold for single filers, his payment was reduced. Between the two of them, they got a total of $1,960 in third stimulus check payments ($1,400 + $560 = $1,960). After receiving their stimulus checks, Patty and Greg file a joint return for the 2020 tax year that is processed before August 16, 2021. Since the AGI reported on their 2020 joint return does not exceed the phase-out threshold for joint filers ($150,000), their stimulus check would have been for $2,800 if it were based on their 2020 return (i.e., it wouldn’t have been reduced). As a result, the IRS will send Patty and Greg a $840 plus-up payment ($2,800 – $1,960 = $840).

You Used the Non-Filers Tool Last Year: Mary is single and has two dependent children. One turned 15 and the other turned 18 in 2020. Mary was not required to file a 2019 tax return, but she did use the IRS’s Non-Filers tool last year to get a first-round stimulus check. Since children over 16 did not qualify for the extra $500 payment for first-round payments, Mary only reported her youngest child to through the tool. The IRS sent Mary a $2,800 third stimulus check based on the information it received through the Non-Filers tool. Mary later files a 2020 tax return, which is processed before August 16, 2021. She used the head-of-household filing status, reported an AGI of $15,000, and claimed both of her children as dependents. For third-round stimulus checks, an additional $1,400 is added to the total payment for each dependent regardless of the dependent’s age. Since Mary’s 2020 AGI is below the phase-out threshold for head-of-household filers ($112,500), her third stimulus check would have been for $4,200 if it were based on her 2020 return. As a result, Mary will receive a $1,400 plus-up payment ($4,200 – $2,800 = $1,400).

A Federal Agency Supplied Information to the IRS: Ron is a disabled veteran who receives benefits from the Department of Veterans Affairs (VA). He is single and has one dependent child. Ron was not required to file a 2019 tax return, but the VA sent information to the IRS about Ron. The VA did not send any information about Ron’s child. Based on the information it had, the IRS sent Ron a $1,400 third stimulus check. After receiving this payment, Ron files a 2020 tax return, which is processed before August 16, 2021. Ron filed as a single person with an AGI of $18,000 and one dependent. Since Ron’s 2020 AGI does not exceed the phase-out threshold for single filers ($75,000), his third stimulus check would have been for $2,800 if it were based on his 2020 return. As a result, the IRS will send Ron a $1,400 plus-up payment ($2,800 – $1,400 = $1,400).

Source: kiplinger.com

The Financial Effects of Losing a Spouse

The death of a spouse is one of the most difficult things imaginable. Besides the emotional toll, surviving spouses typically confront financial issues, which often trigger tax-related questions and consequences. Some of them are fairly straightforward, while others can be tricky. That’s why Letha McDowell, president of the National Academy of Elder Law Attorneys, advises surviving spouses not to make major financial changes immediately. Instead, she tells them to reassess their finances from a tax perspective.

The loss of income after a spouse dies certainly has tax implications. For instance, if a drop in income means the surviving spouse needs to tap into a retirement account, McDowell points out that “the taxes may be less than initially anticipated because, if you have lower income, you may be in a lower bracket.” Less income could also mean that the surviving spouse now qualifies for certain tax deductions or credits that have income caps or phase-out rules. Local jurisdictions often have income-based property tax breaks that may suddenly become available, too.

Eventually, every surviving spouse has a new filing status. A joint federal tax return is allowed for the year the deceased spouse dies if the surviving spouse didn’t remarry. The qualifying widow(er) status may be an option for two more years if there’s a dependent child. After that, a surviving spouse who doesn’t remarry must file as a single taxpayer, which usually means less favorable tax rates and a lower standard deduction.

Inheriting a traditional IRA can also affect the surviving spouse’s taxes, but first, there’s a decision to make. An inheriting spouse can be designated as the account owner, roll the funds into their own retirement account, or be treated as a beneficiary. That decision will affect required minimum distributions and ultimately the surviving spouse’s taxable income.

As either the designated owner of the original account or the owner of the account with rolled-over funds, the surviving spouse can take RMDs based on their own life expectancy. If the third option — staying as the IRA’s beneficiary — is chosen, RMDs are based on the life expectancy of the deceased spouse. “Almost everyone either rolls [an inherited IRA] into their own IRA or at least they transfer it into an account in their name,” McDowell notes. 

“Consolidating makes things much easier to manage.” The third option may make sense if the surviving spouse is at least 72 years old, but the deceased spouse wasn’t. In that case, RMDs from the inherited IRA are delayed until the deceased spouse would have turned 72.

A surviving spouse also receives a stepped-up basis in other inherited property. “If the assets are held jointly between spouses, then there’s a step up in one half of the basis,” McDowell says. “But if an asset was owned solely by the decedent, then that would be a step up of 100%.” In community property states, the total fair market value of property, including the portion belonging to the surviving spouse, becomes the basis for the entire property if at least half its value is included in the deceased spouse’s gross estate.

There’s also a special rule that helps surviving spouses who want to sell their home. In general, up to $250,000 of gain from the sale of a principal residence is tax-free if certain conditions are met. The exemption jumps to $500,000 for married couples filing a joint return, but a surviving spouse who hasn’t remarried can still claim the $500,000 exemption if the home is sold within two years of the deceased spouse’s death.

As for estate taxes, there’s an unlimited marital deduction as well as this year’s $11.7 million estate tax exemption (the amount is adjusted annually for inflation). If the deceased spouse’s estate is nowhere near that amount, the surviving spouse should still file Form 706 to elect “portability” of the deceased spouse’s unused exemption amount. This protects the surviving spouse if the exemption is lowered, as President Joe Biden and others have proposed doing. If that happens, “it’s going to be important for a surviving spouse to have elected portability,” McDowell warns. “And if you don’t file, you don’t get it.”

Source: kiplinger.com

When to Opt-Out of Monthly Child Tax Credit Payments

Monthly child tax credit payments have finally started to arrive! The IRS sent the first round of advance credit payments to eligible families on July 15. Additional payments will arrive on August 13, September 15, October 15, November 15, and December 15. For many families, these payments will mean the difference between financial stability and financial collapse. But for other parents, it may make more sense to decline the advance payments and take the full credit (if any) on their 2021 tax return. If you fall into the latter group, you need to opt-out of the monthly child credit payments using the IRS’s online Child Tax Credit Update Portal. (To sign-in, you’ll need either an existing IRS username or an ID.me account.)

However, there are monthly opt-out deadlines if you want to cut off payments before the next one arrives. To opt-out before you receive a certain monthly payment, you must unenroll by at least three days before the first Thursday of the month in which that payment is scheduled to arrive (you have until 11:59 p.m. Eastern Time). The full list of opt-out deadlines can be found in the table below (note that the deadline for opting out of the first payment has already passed).

Opt-Out Deadlines for Monthly Child Tax Credit Payments

PAYMENT DATE

OPT-OUT DEADLINE

July 15, 2021

June 28, 2021

August 13, 2021

August 2, 2021

September 15, 2021

August 30, 2021

October 15, 2021

October 4, 2021

November 15, 2021

November 1, 2021

December 15, 2021

November 29, 2021

If you miss the deadline and you’re eligible for a monthly payment, you’ll continue to get scheduled payments until the IRS processes a request from you to unenroll from the monthly payment process. If you do opt-out of the monthly payments now, you won’t be able to re-enroll until at least late September 2021.

If you’re married and file a joint tax return, your spouse also needs to opt-out since unenrolling only applies on an individual basis. If your spouse doesn’t unenroll, you’ll still get half of the joint payment you were supposed to receive with your spouse.

Changes to the Child Tax Credit for 2021

For 2020, the child tax credit was worth $2,000 per child 16 years old or younger. It also began to disappear as income rose above $400,000 on joint returns and above $200,000 on single and head-of-household returns. For some lower-income taxpayers, the credit was partially “refundable” (up to $1,400 per qualifying child) if they had earned income of at least $2,500. That means the IRS will issue you a refund check for the refundable amount if the credit is worth more than your income tax liability.

The American Rescue Plan, which was enacted in March, provided a significant expansion of the credit for the 2021 tax year (and only for the 2021 tax year). For example, the credit amount jumped from $2,000 to $3,000 for children 17 years of age or younger (up from 16 years of age) and to $3,600 for children 5 years old and younger. The extra amount ($1,000 or $1,600) is reduced – potentially to zero – for families with higher incomes, though. For people filing their tax return as a single person, the extra amount starts to phase-out if their adjusted gross income is above $75,000. The phase-out begins at $112,500 for head-of-household filers and $150,000 for married couples filing a joint return. The credit amount is further reduced under the pre-existing $200,000/$400,000 phase-out rules. The child tax credit was also made fully refundable for the 2021 tax year (which means refund checks triggered by this year’s credit can be greater than $1,400), and the $2,500-of-earned-income required was dropped for the year.

However, the most unique change for the 2021 child tax credit is that half of the credit amount will be paid in advance through monthly payments issued between July and December of this year – if you want them. If you don’t want the monthly payments, then you need to opt out of the advance payment process. If you don’t opt-out and accept all six of the monthly payments, then you’ll claim the remaining half of the total credit amount on your 2021 tax return, which you’ll file next year. If you opt-out of some but not all the monthly payments, every dollar you receive from July to December will reduce the amount of credit you’ll claim on your 2021 return. (Kiplinger’s 2021 Child Tax Credit Calculator tells you how much your monthly payments will be and how much you can claim on your 2021 tax return.)

Who Might Want to Opt-Out of the Monthly Child Tax Credit Payments?

Not everyone will want to receive half their child tax credit in monthly payments this year. For example, if you don’t need the money this year, you may be better off taking the full credit on your 2021 tax return to lower next year’s tax bill or increase the amount of your tax refund.

If you don’t opt-out, you might have to pay back some of the advance payments, too. In most cases, the monthly payments will be based on your 2019 or 2020 tax return. But the credit amount will ultimately be based on the information reported on your 2021 return. If your circumstances change in 2021, you could end up being paid too much in monthly payments. This can happen, for example, if you earn more money in 2021 or you can no longer claim a child as a dependent this year (e.g., because of alternating custody under a divorce decree).

There is a “safe harbor” rule for lower-income families. Parents with 2021 modified adjusted gross income (AGI) no greater than $40,000 (single filers), $50,000 (head-of-household filers), or$60,000 (joint filers) won’t have to repay any child tax credit overpayments. However, families with a modified AGI from $40,000 to $80,000 (single filers), $50,000 to $100,000 (head-of-household filers), or $60,000 to $120,000 (joint filers) will need to repay a portion of any overpayment. Parents with modified AGIs above those amounts will have to pay back the entire overpayment.

For complete coverage of this year’s credit, see Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs.

Source: kiplinger.com

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

The IRS is now making monthly child tax credit payments to eligible families. Depending on the age of your child, those payments can be as much as $300-per-kid each month from July to December. That’s an extra $1,800 per child in your pocket if you get the full amount for six months. But what if the IRS sends you too much money – do you have to pay it back? Maybe.

When the IRS was doling out stimulus check money, they occasionally overpaid someone. But there was nothing in the law requiring repayment of a stimulus check. So, if you got too much, you generally were allowed to keep it.

But that’s not the case with the monthly child tax credit payments. The law authorizing these payments specifically says that any excess amounts must be paid back when you file your 2021 tax return if your income is above a certain amount. There are exceptions to this rule for middle- and lower-income families, but they’re limited. Plus, the way the monthly payments are calculated, overpayments could be fairly common. So, this could be a big issue for a lot of families.

Changes to the Child Tax Credit for 2021

Before getting into how you might end up with an overpayment and the details of the payback rules, it’s probably a good idea to go over some of the changes to the child tax credit that apply for the 2021 tax year (and, so far, only for 2021). Last year, the maximum child tax credit was $2,000 per child 16 years old or younger. It was also phased-out if your income exceeded $400,000 for married couples filing a joint return or $200,000 for single and head-of-household filers. For some lower-income taxpayers, the credit was partially “refundable” (up to $1,400 per qualifying child) if they had earned income of at least $2,500 (i.e., you got a refund check for the refundable amount if the credit was more than the tax you owed).

The American Rescue Plan, which was enacted in March, made some major changes to the child tax credit for the 2021 tax year. For one thing, the credit amount was raised from $2,000 to $3,000 for children 6 to 17 years old and to $3,600 for kids 5 years old and younger. The $2,500 earned income requirement was also dropped, and the credit was made fully refundable (which means refund checks triggered by this year’s credit can be greater than $1,400).

There are also two phase-out schemes in play for families with higher incomes in 2021. The first one can’t reduce the credit amount below $2,000 per child. It kicks in if your modified adjusted gross income (AGI) is above $75,000 (single filers), $112,500 (head-of-household filers), or $150,000 (joint filers). The second phase-out is the same $200,000/$400,000 one that applied before 2021.

Finally, the American Rescue Plan requires the IRS to pay half of your total credit amount in advance through monthly payments issued this year from July to December (you can opt-out if you want). In most cases, the IRS will base the amount of these payments on information it pulls from your 2020 tax return. Next year, you’ll claim the remaining half of the credit on your 2021 tax return. In practice, this will be done by subtracting every dollar you received from July to December from the total credit you’re entitled to claim and then reporting the leftover amount, if any, as a child tax credit on your 2021 return. (Use our 2021 Child Tax Credit Calculator to see how much your monthly payments will be and what should be leftover to claim as a credit on your 2021 tax return.)

For complete coverage of the changes for 2021, see Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

How Child Tax Credit Overpayments Can Occur

You may be wondering why the IRS would send you too much money in the first place. If the goal is simply to give you a 50% advance of your total child tax credit over a six-month period, it doesn’t seem like that would be too difficult. It’s basic math – right?

Well, yes, the math itself is easy…but things change, which can make it difficult to find the right numbers to plug into the computers. For instance, what if your income increases in 2021 to a point where your child tax credit is now partially or completely phased out. The IRS is going to look at your 2020 tax return to calculate the amount of your monthly payment. If your 2020 income was below the credit’s phase-out thresholds, the IRS is probably going to send you the maximum amount each month. However, because of your higher 2021 income, your 2021 child tax credit is going to be lower than expected…which could create an overpayment.

Since the child tax credit phase-out thresholds are tied to your filing status, a similar situation can arise from a change to your family situation in 2021 (e.g., a divorce). For example, imagine that the IRS bases your monthly payments on your 2020 joint return and your 2021 income is lower than the credit phase-out threshold for joint filers. You then use a different filing status on your 2021 return with a lower credit phase-out threshold (e.g., single or head-of-household) that results in a reduced child tax credit amount. That can also generate an overpayment.

If you claim the child tax credit for fewer children in 2021 than you did in 2020, that can result in an overpayment, too. This can happen, for instance, if you’re divorced and you claimed your child as a dependent on your 2020 tax return, but your ex-spouse claims the child as a dependent for 2021 taxes (a common arrangement). In that case, the IRS is going to send you monthly payments for the child. However, since you won’t qualify for the child tax credit on your 2021 return (your ex will), all the money you received from July to December will be an overpayment.

And here’s one more example…your main home must be in the U.S. for more than half of 2021 to qualify for monthly child tax credit payments. If you satisfied that requirement in 2020, but not in 2021, the IRS could end up sending you monthly payments that you’re not supposed to get. That can result in an overpayment as well.

Payback Requirements for the 2021 Child Tax Credit

Now let’s talk about what happens if you end up with a child tax credit overpayment. Depending on your income, you might have to pay some or all of it back as an addition to the tax you owe when you file your 2021 return next year.

Lower-income people get a good deal. If your modified AGI for 2021 doesn’t exceed $40,000 (single filers), $50,000 (head-of-household filers), or $60,000 (joint filers), and your principal residence was in the U.S. for more than half of 2021, you won’t have to repay any overpayment amount. That’s a win for you!

On the other hand, parents with higher incomes don’t get any breaks at all. If your modified AGI for the 2021 tax year is at least $80,000 (single filers), $100,000 (head-of-household filers), or $120,000 (joint filers), you have to pay back your entire overpayment. Ouch!

It’s a little more complicated for people in the middle. All or part of your overpayment might be forgiven if your modified AGI for 2021 is between $40,000 and $80,000 (single filers), $50,000 and $100,000 (head-of-household filers), or $60,000 and $120,000 (joint filers). To determine how much of your overpayment is wiped out (if any), you first need to calculate what the IRS calls your “repayment protection amount.” This is equal to $2,000 multiplied by:

  • The number of children the IRS used to calculate your monthly child tax credit payments, minus
  • The number of children used to calculate the total credit amount on your 2021 tax return.

If there’s no difference between the number of children used to calculate the two amounts, then there’s no overpayment reduction, and the full amount must be repaid. If you have a positive repayment protection amount, it’s then gradually phased-out as your modified AGI increases within the income range above. The phase-out rate is based on how much your modified AGI exceeds the lower limit of the applicable income range. Once your final repayment protection amount is calculated, it’s subtracted from your overpayment to determine how much you need to repay (but your overpayment can’t be reduced below zero).

Here’s an example of how this works: Joe, who is single, claimed a child tax credit for two children on his 2020 tax return (the children are 2 and 4 years old at the end of 2021). As a result, the IRS sent him $3,600 in monthly payments in 2021. However, Joe can’t claim the child tax credit on his 2021 return because his ex-wife is claiming the children as dependents on her return. Since his 2021 child tax credit is $0, the entire $3,600 he received from the IRS is an overpayment. Joe’s initial repayment protection amount is $4,000 (i.e., $2,000 for each child). If Joe files a 2021 return with a modified AGI of $60,000, his modified AGI exceeds the lower limit of the applicable income range – $40,000 – by 50% ($60,000 – $40,000 / $80,000 – $40,000 = 0.5). As a result, Joe’s $4,000 repayment protection amount is reduced by 50% to $2,000. Therefore, Joe only has to repay $1,600 of his $3,600 overpayment ($3,600 – $2,000 = $1,600).

[Note: You may also have to pay a portion of your overpayment if your modified AGI is less than or equal to $40,000 (single filers), $50,000 (head-of-household filers), or $60,000 (joint filers) and you lived outside the U.S. for at least half of 2021.]

How to Prevent Child Tax Credit Overpayments

If you think an overpayment is in your future, there are two things you can do to minimize or eliminate any potential repayment obligation. First, you can opt-out of the monthly payments. If you’re no longer receiving monthly payments, then you might be able to avoid an overpayment altogether (just make sure you meet the deadline for opting out before the next scheduled payment). If you’ve already received enough money from the IRS to create an overpayment, opting out can at least prevent the overpayment from growing larger.

To opt-out, go to the Child Tax Credit Update Portal on the IRS’s website. You’ll need either an existing IRS account or an ID.me account to access the online tool. Although you can’t do it now, later this summer you’ll be able to restart monthly payments through the portal if you previously opted out.

You can also control a potential overpayment by updating any outdated information concerning your income, filing status, or qualifying children that the IRS pulled from your 2020 return or collected from some other source. Once the IRS gets the new information, it can adjust (i.e., lower) your remaining monthly payments to account for the change. This could also prevent or reduce an overpayment.

You’ll have to use the Child Tax Credit Update Portal to report any updates. However, this functionality is not available yet. Again, it should be ready later this summer.

Source: kiplinger.com

Who Won’t Get Monthly Child Tax Credit Payments (Not Every Parent is Eligible)

Parents all over the country patiently waited for monthly child tax credit payments from the time they were announced in March until money first started to arrive in bank accounts on July 15. These payments, which can be as high as $300-per-child each month, have the potential to keep millions of American families out of poverty. However, while the wait is over for most parents, some people are very disappointed because they haven’t received any money from the IRS.

The monthly payments are really just advance payments of the child tax credit you would otherwise claim on your tax return. You’ll get half the total credit amount in six monthly payments from July to December this year, and then claim the other half when you file your 2021 tax return next year. In most cases, the IRS will determine your eligibility for and the amount of your child tax credit and advance payments based on either your 2020 or 2019 tax return, whichever one was most recently filed. (The IRS also has an online tool that helps you determine if you’re eligible.)

If you don’t receive monthly payments, it could be due to your family income, child’s age, place of residence, or some other disqualifying factor. To help you figure it all out, here’s a list of common reasons why you might not get monthly child tax credit payments from the IRS. Hopefully, you get payments if you’re expecting them, especially if you’re one of the millions of Americans still struggling financially because of the pandemic. But if you don’t, it’s easier to plan your next move if you know why you were left out.

(For complete coverage of the 2021 child tax credit, including more information about the monthly advance payments, see Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs.)

1 of 9

Your Child is Too Old

picture of birthday cake for 18 year oldpicture of birthday cake for 18 year old

To qualify for the 2021 child tax credit – and, therefore, for the monthly payments – your child must be 17 years old or younger at the end of the year. That’s actually one year older than what was permitted in previous years. So, if your kid turns 17 in 2021, you get to claim the child tax credit for him or her one more time. But if your child is 18 or older at the end of this year, you can’t claim the credit or receive monthly payments for him or her.

You may not be completely out of luck if you have a dependent child who is over the age limit, though. While you’re not eligible for the child tax credit or advance payments, you may be able to snag an extra $500 when you file your 2021 tax return next year by claiming the credit for “other dependents.” This alternative credit may even be available if your kid is in college.

2 of 9

Your Child Was Born in 2021

picture of a mother kissing her sleeping babypicture of a mother kissing her sleeping baby

Assuming you’re otherwise eligible, you can claim the 2021 child tax credit if you have a baby this year. However, you still might not get monthly advance payments for the child because the IRS doesn’t know about your new bundle of joy. The tax agency is looking at previous tax returns to see who is eligible for monthly payments. If they don’t see a child on your 2020 or 2019 return, whichever was filed most recently, they’re not going to send you monthly payments.

The good news is that the IRS will have a solution for this problem later in the summer when it updates the Child Tax Credit Update Portal to allow you to add qualifying children you will claim on your 2021 tax return. Once the IRS is aware of your new son or daughter, it can adjust your estimated 2021 child tax credit and then adjust the amount of your monthly payments.

If you don’t use the IRS portal later this year to add your child, you can still claim the full amount of your allowable child tax credit for that child when you file your 2021 tax return next year. So, you won’t lose any money…but you’ll have to wait to get it.

3 of 9

Your Income is Too High

picture of a rich guy getting out of a limo in front of a private jetpicture of a rich guy getting out of a limo in front of a private jet

For 2021, the child tax credit is worth $3,000-per-child for children ages 6 to 17 and $3,600-per-child for kids who are 5 years old or younger. That translates to maximum monthly payments of $250-per-child or $300-per-child, respectively.

However, the child tax credit is phased-out for people at certain income levels (based on your 2020 or 2019 tax return). If your total credit is reduced, so will your monthly payments. If your income is high enough, your credit and monthly payments will be completely phased out and you’ll get nothing!

There’s a complicated system under which your credit and payments can be phased-out in two different ways. Without going into too much detail, you’re at risk of an initial reduction if the modified adjusted gross income (AGI) on your most recent tax return is above $75,000 for single filers, $112,500 for head-of-household filers, and $150,000 for married couples filing a joint return. During this step, your total credit can’t be reduced below $2,000-per-child, which means your monthly payment won’t be less than $167-per-child.

The second phase-out can totally wipe out your credit and monthly payment if your modified AGI exceeds $400,000 on a joint return or $200,000 on other returns. However, it’s still a gradual reduction, so even people with incomes above the $400,000/$200,000 threshold can still qualify for a credit and monthly payments. (Use our 2021 Child Tax Credit Calculator to see how your income can impact your credit and advance payments.)

If your income changes in 2021, you’ll be able to let the IRS know later this summer using the Child Tax Credit Update Portal. If this year’s income is lower than in 2020 (or 2019), then your monthly payments may increase after using the online portal. If your 2021 income increases, make sure to let the IRS know that, too. You don’t want to receive more in monthly payments than what you’re entitled to, because you then risk having to pay it back next year when you file your 2021 tax return.

4 of 9

You Haven’t Filed a Recent Tax Return

picture of a crumpled up tax formpicture of a crumpled up tax form

As mentioned above, the IRS will base monthly payment amounts on your 2020 or 2019 tax return in most cases. But not everyone is required to file a tax return. So, if you haven’t filed a recent return, will you still get monthly child tax credit payments?

It depends. If you used the IRS’s “Non-Filers: Enter Payment Info Here” portal last year to claim a first-round stimulus check, your monthly payments will be based on the information you provided through the tool. However, if you didn’t use the non-filers tool last year and you want to receive monthly payments, you need to use the new Child Tax Credit Non-Filer Sign-Up Tool, file a “simplified” return or zero AGI return using the IRS’s special procedures, or file a normal 2020 tax return. If you don’t act now, you won’t receive any advance child tax credit payments. (For more information, see How to Get Child Tax Credit Payments if You Don’t File a Tax Return.)

5 of 9

Your Child Doesn’t Have a Social Security Number

picture of a Social Security cardpicture of a Social Security card

Many changes were made to the child tax credit for the 2021 tax year. The credit amount was increased, it’s fully refundable, 17-year-old children qualify, and, of course, advance payments were authorized. But there are other requirements from previous years that weren’t changed. For instance, you still can’t claim the child tax credit, or get monthly payments, for a kid who doesn’t have a Social Security number.

Your child’s Social Security number must also be “valid for employment” in the U.S. and issued by the Social Security Administration (SSA) before the due date of your 2021 tax return (including extensions). If your child was a U.S. citizen when he or she received the Social Security number, then it’s valid for employment in the U.S. If “Not Valid for Employment” is printed on the child’s Social Security card and his or her immigration status has changed so that of a U.S. citizen or permanent resident, ask the SSA for a new Social Security card. If “Valid for Work Only With DHS Authorization” is printed on the card, your child has the required Social Security number only as long as the Department of Homeland Security authorization is valid.

You, and your spouse if you’re married, must also have a Social Security number or an Individual Taxpayer Identification Number (ITIN) to claim the child tax credit and receive advance payments. In addition, you’ll only receive monthly payments only if you used your correct Social Security number or ITIN when you filed your 2020 or 2019 tax return or entered information into the IRS’s non-filer tool in 2020 to receive a first-round stimulus check.

6 of 9

Your Child is a Nonresident Alien

picture of a person holding a green cardpicture of a person holding a green card

Your child must be either a U.S. citizen, U.S. national, or U.S. resident alien for you to claim the child tax credit or receive monthly advance payments. There is one exception: If you’re a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, the child is considered a U.S. citizen for child tax credit purposes.

Generally, a “resident alien” either has a green card or is physically present in the U.S. for a certain amount of time. A “U.S. national” is someone individual who, although not a U.S. citizen, owes his or her allegiance to the United States. American Samoans and Northern Mariana Islanders can also choose to be a U.S. national instead of a U.S. citizen.

See IRS Publication 519 for more information on the taxes for U.S. nationals and resident aliens.

7 of 9

Your Ex-Spouse Claimed Your Child as a Dependent Last Year

picture of a cut-out family on paper that is torn in halfpicture of a cut-out family on paper that is torn in half

If the IRS looks at your ex-spouses 2020 tax return and sees that he or she claimed your child as a dependent on that return, your ex is going to get the monthly child tax credit payments starting July 15 – even if you will claim the child as a dependent for 2021. You’ll be able to correct this when the IRS updates its Child Tax Credit Update Portal later this summer, but until then you won’t see any advance payments. Once you revise your information in the portal, the IRS will adjust your estimated 2021 child tax credit and start sending you monthly payments.

If the tables are turned and you’re receiving monthly payments even though your ex-spouse will claim your child as a dependent for the 2021 tax year, you should consider using the portal now to opt-out of the payments. That will reduce the risk of having to repay any advance child tax credit payments when you file your 2021 tax return next year.

8 of 9

You Live Outside the U.S.

picture of a family in Paris near the Eiffel Towerpicture of a family in Paris near the Eiffel Tower

To receive monthly child tax credit payments, you (or your spouse if you’re filing a joint return) must have your main home in the U.S. for more than half of 2021 or be a bona fide resident of Puerto Rico for the year. Your main home can be any location where you regularly live, as long as it’s in one of the 50 states or the District of Columbia. Your main home can be a house, apartment, mobile home, shelter, temporary lodging, or other location. It doesn’t have to be the same physical location throughout the year, either.

You also don’t need a permanent address to get monthly payments. If you’re away from home temporarily because of illness, education, business, vacation, or military service, you’re still generally considered to be living in your main home for child tax credit purposes.

9 of 9

You Can Be Claimed as a Dependent

picture of a tax form showing space to list dependentspicture of a tax form showing space to list dependents

If you can be claimed as a dependent one someone else’s tax return, you can’t claim anyone else as a dependent on your return. If you’re filing a joint return and your spouse can be claimed as a dependent by another person, you and your spouse can’t claim any dependents on your joint return.

If you can’t claim your child as a dependent because of this rule, you can’t claim the child tax credit for him or her. If you can’t claim the child tax credit, you’re not eligible for advance payments of the credit. So, if you can be claimed as a dependent on another person’s tax return, then you won’t receive monthly payments.

This is one of the rules for 2021 that was carried over from previous years.

Source: kiplinger.com