On July 15, the Internal Revenue Service sent the first of six advance payments to parents of children 17 years and younger as part of the Expanded Child Tax Credit for 2021.
In March, Congress expanded the Child Tax Credit to as much as $3,600 per child for the year 2021 (up from $2,000 per child in previous years), as part of the Biden Administration’s effort to reduce child poverty.
Tax credits are a dollar-for-dollar reduction of your tax obligation. Typically tax credits are claimed by electing the credit on your yearly tax return, but for 2021 the IRS will pay half the expanded Child Tax Credit amount in advance payments directly to families before they file their 2021 tax returns.
The IRS is using tax returns already on file from 2020 and 2019 to determine eligibility, and automatically enrolling qualified families, so if you filed your 2019 or 2020 tax return, you do not need to take any additional action to receive advance payments. Most payments are being sent electronically to bank accounts on file with the IRS.
This means that families will get immediate cash payments, without needing to wait for their 2021 tax refund. This program is an effort to provide relief to families who may have already been struggling through COVID for the last year and a half, and to help families rise out of poverty. These changes to the Child Tax Credit apply to the year 2021 only. Families can claim the other half of the expanded Child Tax Credit when they file their 2021 income tax return.
Advance payments could be up to $300 per child, per month from July through December, but expats need to be cautious about receiving these advance payments. According the the IRS eligibility requirements:
To qualify for advance Child Tax Credit payments, you — and your spouse, if you filed a joint return — must have:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
- Given the IRS your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
- A main home in the United States for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the United States for more than half the year; and
- A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
- Made less than certain income limits.
It’s the point about having a main home in the United States for more than half the year that will likely disqualify many expats living abroad.
If you don’t qualify, BNC Tax recommends unenrolling from the program to stop receiving advance payments.
Unqualified expats who receive advance Child Tax Credit payments may end up needing to pay the IRS back in the form of a smaller tax refund or even owing tax at the end of the year.
It’s better to opt out of advance payments if you don’t qualify, or if you’re not sure if you qualify, because you can still claim the credit on your 2021 tax return at the end of the year if you determine that you are eligible. That’s better than having to pay the money back to the IRS.
Expats who don’t qualify for the Expanded Child Tax Credit Advance Payments program in 2021 will revert back to qualification for the regular Child Tax Credit of up to $2,000 per child, which can be claimed on your 2021 tax return.
So even if you don’t qualify for the Advanced Child Tax Credit, it doesn’t mean you get nothing. If you received the regular Child Tax Credit in previous years, you won’t lose it.
You can use the tools on the IRS webpage to determine if you are eligible for advance payments, check if you are already enrolled in the program, and unenroll yourself. You’ll have to create an account with ID.me on the IRS page, but you can sign in with Facebook or Google to create your account. Then you’ll need to complete a 2-factor identification via phone call, text, or mobile app option.
Are you an expat who needs help filing your U.S. taxes and taking advantage of credits you are eligible for? Contact BNC Tax for a consultation or a quote for tax preparation services. We are experts in U.S. tax and specialized for expats and Americans abroad. We offer personal and business tax preparation services, FINCEN Reporting (FBAR), Streamline Filing, Foreign Income Exclusion (FEIE) and Foreign Tax Credits reporting and much more. We have filed over 5,000 tax returns for clients in 25 countries in our 18 years in the business. We would love to see how we can optimize your expat taxes and save you money! Learn more about our services by browsing our website and blog.