Child Tax Credit Change for 2021
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| The Gaylor kids (a few years ago) |
As part of legislation passed on March 11, 2021 - the American Rescue Plan Act made changes to the child tax credit for the year 2021. This credit has increased from the prior $2,000 per eligible child to a maximum of $3,600 for each child under age 6 at the end of 2021, a maximum of $3,000 for each child under age 18 at the end of 2021. Interesting note, the child tax credit has been expanded to include kids aged 17 for this year, previously those children would not be eligible for this credit.
Previously parents would receive this credit when filing their income tax return, now under this legislation, parents will be able to get advanced payments beginning in July. The advanced payments will be calculated based on the 2020 tax return (if filed and processed, otherwise based on 2019), paid in monthly installments and will be up to 50 percent of the Child Tax Credit amount (i.e. up to $300 per month - total paid out of $1,800 for children under age 6, $250 per month - total of $1,500 for children over 5 and under 18).
The credit has income thresholds that affect qualifying for the full amount, the credit will be reduced for incomes over $150,000 for married taxpayers filing a joint return, $112,500 for heads of household, and $75,000 for all other taxpayers.
CAUTION/WARNING: For taxpayers that utilize the child tax credits to cover their tax liability, the advanced payments will reduce the child tax credit available on the 2021 tax return as it will be paid in advance. This advanced payment may also cause problems for divorced or separated parents, that alternate who claims the child - if you are paid in advance for a year that you don't claim the child, you may have to repay the advance.
SOLUTION: The IRS is supposed to be providing a website portal to opt-out of the advance payments for those taxpayers that choose to do so. This is supposed to be available by July 1st,you should be able to check that here: IRS Advance Child Tax Credit Payments in 2021
Updated June 16, 2021: The IRS has released a FAQ page about the Child Tax Credit here: 2021 CTC and Advance Payments-FAQs
Also the IRS has released a tool to help families that don't normally file tax returns to register for the Advance Child Tax Credit payments. This system essentially files a tax return for those families - so this is to be used ONLY for taxpayers that have NO income tax filing requirement. The link can be found on the IRS website but is not linked here to prevent being used in error.
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