FAQ guidance on income change reporting for advance child tax credit

By Paul Bonner

The IRS on Tuesday issued Fact Sheet 2021-13 updating its frequently asked questions (FAQs) concerning the child tax credit (CTC) and advance payments, telling taxpayers how to estimate and update their projected 2021 MAGI on the online Child Tax Credit Update Portal and explaining how modified adjusted gross income (MAGI) affects eligibility for, and the amount of, the CTC and advance payments.

Generally, the IRS has used information from taxpayers' 2020 tax return (or, if that was not filed, 2019) to determine eligibility for advance CTC payments, which began in July this year.

New or modified FAQs under Topic F, Updating Your Child Tax Credit Information During 2021, numbers 2 through 6, define MAGI and tell where on a return to find and compute it, the effects of reporting an increase or decrease in 2021 from 2020 (or 2019), and a clarification that either spouse of a married couple filing jointly for 2020 and 2021 can report MAGI changes in 2021 for them both (FAQ F6).

New FAQ 17 under Topic A, General Information, clarifies that the IRS will not automatically update advance CTC payment amounts to take into account a taxpayer's MAGI that is significantly different in 2021 from that shown on a filed 2020 return, but that a taxpayer may do so using the portal.

It also suggests taking that action if the 2021 MAGI estimate is higher than the CTC initial phaseout threshold. MAGI above that figure reduces the CTC by $50 for every $1,000 above the threshold and decreases advance payment amounts correspondingly. Those thresholds are $75,000 for single taxpayers or married taxpayers filing separately, $112,500 for heads of household, and $150,000 for married taxpayers filing jointly. A second phaseout reduces the CTC below $2,000 per child for MAGI above $400,000 for married couples and $200,000 for all others.

The full CTC amount is $3,000 for each qualifying child between ages 6 and 17 at the end of the 2021 tax year and $3,600 for each qualifying child under age 6 at the end of the 2021 tax year. The full advance credit is $300 per month for each child under age 6 and $250 per month for each child age 6 to 17.

Paul Bonner (Paul.Bonner@aicpa-cima.com) is a Tax Adviser senior editor.

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