Many of you receive a child tax credit each year either as a reduction of taxes owed at the end of the year or as an increase in your refund amount. In 2021, there are several critical changes that have gone into effect that will impact both the way you receive this tax credit as well as how much you will receive.
How much tax credit can I receive?
For the last several years, taxpayers could receive a $2,000 tax credit per child under 17 years old. However, if your children meet certain parameters, that amount could be higher. For 2021 only, families can receive up to $3,000 (an additional $1,000) per child for children between ages six and 17, and up to $3,600 (an additional $1,600) per child for children under the age of six at the end of 2021.
These increased credits will reduce for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers. It’s important to note that these reductions are only for the increased amount, not the original $2,000 credit.
Based on which child tax credit you are eligible for, this year the IRS will begin sending advance payments to those who qualify. This means that you will receive monthly payments equaling 50% of the total tax credit from July through December. For example, if you are eligible to receive $3,000 in tax credit, you will receive monthly payments of $250 to equal $1,500 after six months. You won’t have to wait to receive this credit until the end of the year when you get your tax return back.
Advance payments will be estimated from information gathered from your most recently filed tax return. However, it is VERY important to be aware that receiving these payments in advance means you will not collect this money as you normally would at the end of the year, either as a reduction of taxes owed or an increase in your refund. This means that your tax return refund could be much lower or amounts due much higher than previous years. It may also affect any estimated tax payments that you need to make as the amount of credit you would normally receive will be less if you receive advance payments.
If you do not wish to receive the payments in advance and prefer to receive the money at the end of the year, you are able to OPT OUT of advance payments. This will be available through a portal from the IRS that will open on July 1. If you do not opt out, the IRS will automatically begin sending advance payments starting in July.
If you would like more ongoing information and instructions on how to unenroll, please continue to check www.irs.gov/childtaxcredit2021.
The IRS urges people with children to file their 2020 tax returns as soon as possible if they have not already to ensure they’re eligible for the appropriate amount of the child tax credit.
If you have any questions about the updated child tax credit information or need to file your 2020 tax return, reach out to us at Shaw & Associates. We’re here to help.