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The 2021 child tax credit includes payments that the IRS will send from July to December of 2021. The payment is based on the 2020 filing. However I get the impression that it is really based on the 2021 filing. Therefore if you make more in 2021 you may have to pay some back. What about the opposite situation? Due to a one time event, my spouse and I made more in 2020 than we will in 2021. We are phased out of much of the credit, however we would qualify based on our expected 2021 levels.

So the question is - if I defer the 6 monthly payments until 2022 can I then compute my eligibility for the credit based on 2021's AGI?

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The advance child tax credit payments that will be paid out in 6 monthly payments from July-December 2021 will be based on the information on your 2020 tax return. However, the payments are really a prepayment of your 2021 child tax credit. And unlike the stimulus payments of the last year, if you end up being paid more than your next tax return makes you eligible for, you do indeed need to pay back the excess money on your 2021 tax return.

If you expect that your 2021 status is different enough from your 2020 status that you will have a reduced credit (perhaps your kids have aged out of the credit, or your 2021 income will have increased enough to phase you out), you can opt to refuse the payments in 2021. Instead, you’ll take the (reduced) tax credit on your 2021 tax return, just as has been done in the past, and you won’t have any excess payments that need to be paid back.

However, in your situation, you are expecting your 2021 child tax credit to increase in 2021 over 2020, due to a reduced income. This means that your 6 payments will be small, but when you do your 2021 taxes next year, the calculated tax credit will be larger than the payments you received. You’ll take the difference as a credit on your tax return, increasing your refund, or decreasing the amount you owe.

Assuming you are okay with getting money from the government early, there is no reason that I see for you to refuse the payments. When you do your 2021 return, you’ll get the rest of your credit that your 2021 status entities you to.

Really, it doesn’t ultimately change anyone’s bottom line no matter which option they choose: Your final tax credit will be based on your 2021 tax return no matter what, and if the payments you received (based on 2020 information) were too high or too low, it will be corrected accordingly on your 2021 tax return.


Update: The IRS has announced that there is a new tool coming soon that they call the Child Tax Credit Update Portal (CTC UP). Eventually, this will allow you to not only refuse the advance payments, but to update your 2021 child and income information to increase or decrease the amount of the advance payments. The advance payments will total half of the expected 2021 tax credit. No matter what you choose, however, ultimately you will end up with the same amount of money in the end after your 2021 tax return is filed, because the credit is now refundable and because excess payments need to be paid back.

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  • Thank you for explicitly making it clear what happens in both cases - if you make less in 2021 or if you make more.
    – user12515
    Jun 23, 2021 at 16:11

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