From February 2020 to February of 2021 the U.S. economy lost approximately 10 million jobs as state and local governments shutdown businesses to prevent even more people from dying from Covid-19.

To help families stay afloat while businesses continue to try to recover from the pandemic, the U.S. Treasury has begun sending advanced child tax credit payments of $250 to $300 per child per month under the American Rescue Plan Act.

But some families, including those who own or work on farms, may not want to receive those payments, depending on their income levels, according to Kristine Tidgren, director of the Center for Ag Law and Taxation at Iowa State University. She was a speaker for the Mid-South Agricultural and Environmental Law Conference, which was held online this year.

Most of Tidgren’s presentation concerned proposed changes in the “tax at death” or estate tax laws that could happen later this year. But she opened with income tax updates that are impacting producers now.

“I wanted to highlight some actual legislation that did pass in March and does impact everybody out there, including our agricultural producers,” she said. “These are a couple of things that are new and significant that I want to make sure everyone is aware of, and they understand what is actually happening.”

The American Rescue Plan, which President Biden signed in March, included a temporary expansion of the $2,000 tax credits that were part of the Tax Cuts and Jobs Act Congress passed in 2017. The law increases the maximum Child Tax Credit in 2021 from $2,000 to $3,600 for children under the age of 6 and to $3,000 per child for children between the age of 6 and 17.

“Hand in hand with that was the idea that we’re not only going to give everyone a really large tax credit for every child, but we’re going to start getting the money into the hands of parents during 2021 instead of waiting until returns are filed in February of next year,” she said.

“We’re all used to these economic impact payments that were made throughout 2020 and in 2021, but this is a child tax credit advance, and it’s treated completely differently from a reconciliation standpoint. So I want to get the word out so that everyone understands what these payments are and what they mean for you when you file your return next year.”

Advanced payment eligibility

The Internal Revenue Service has calculated that 88% of U.S. children will be eligible for the advanced payment of the enhanced child tax credit.

“This is a significant tax benefit because it’s a refundable credit,” Tidgren noted. “The entire amount of the credit is refundable, which means that you don’t have to owe any tax at all, and you receive this as a check. So it’s similar to an economic impact payments, but it’s being made only to parents with children.”

Congress directed the U.S. Treasury to send portions of the payments out in advance during the second half of 2021, beginning July 15 and continuing each month through December. The payments for most parents will be $250 per month per child between the ages of 6 and 17 and $300 per month for children under the age of 6.

The payments will be based on income. For a married couple with annual income of more than $150,000, the increased payments will be phased out and reduced, although those higher income families will still be entitled to the $2,000 credit.

“You will still receive an advance for that $2,000 credit up to the point where your income reaches $400,000,” she said. “If you have $400,000 of income then the whole child tax credit starts to phase out once you reach that income level.”

The latest information from the Treasury Department and the IRS says 36 million American families began receiving the advanced child tax credit deposits in July based on information from their 2020 tax returns. (If the 2020 return had not been filed or processed, the IRS will rely on the 2019 federal income tax return.)

Tidgren said not everyone with families will want to receive these advanced child tax credit payments. “Maybe your income is right at one of those thresholds where the amount of the credit the IRS is calculating for you is more than what it will be when you file your return. In that case, you might be overpaid.

“You don’t want to be overpaid because this is not like the economic impact payment, and this is going to be reconciled in a way that most people who are overpaid will have to pay this credit back.”

There are also situations where couples are divorced, share custody and may alternate every other year in terms of who gets to claim which child. The IRS may calculate an advanced credit for you, but if it was your former spouse’s turn to claim the child you will have to repay the credit.

In January of 2022, the IRS will be sending a report much like a form 1099 that will list all of the advanced credit payments each family has received. Taxpayers will be responsible for reconciling the advanced payment with the tax credit for which they’re eligible on their 2021 tax return.

Meanwhile, Tidgren says, the IRS will be creating a form on the www.irs.gov website that will allow those parents who don’t wish to receive the advanced child tax credit payments to opt out of the payments.