CASH RULES EVERYTHING AROUND ME: WHAT YOU NEED TO KNOW ABOUT THE 2021 FEDERAL CHILD TAX CREDIT
Beginning next week, many families will start receiving monthly Child Tax Credit payments. This credit has increased for 2021; a parent can receive up to $3,600 per child under six years old, and $3,000 per child between six and 17 years old. Previously, the amount was $2,000 for all eligible ages. Also, this year, the credit will apply in full, even if there is no tax due. That means that, if there is no tax due, the credit will take the form of a direct payment from the government to the taxpayer.
The credit phases out for higher incomes. For a head of household, the phase-out begins at $112,500 of income. For single or married filing separately, it begins at $75,000. For couples filing jointly, it begins at $150,000.
In addition to increasing the amount of the Child Tax Credit, the government is giving advance refunds. In comparison to the current child income credit, which is typically payable when tax returns are filed, in the following year, the Child Tax Credit in 2021 will be paid in advance. Eligible households receiving the full amount can expect monthly payments, beginning July 15th, of $300 for children under six and $250 for older children. The advance payments are intended to total half of an eligible household’s total credit. The remaining half will be claimed on the 2021 tax return in the usual way.
To determine eligibility for the credit, the IRS will use your 2020 federal tax returns, so make sure you file them, if you haven’t already. To receive the credit, no action is required at this time, other than filing those 2020 tax returns. If you aren’t required to file a return due to low income, you can still receive the credit, but will need to contact the IRS. If you are divorced, who gets the credit will depend upon who claims the children on their return.
You will have the option to decline the advance payments for 2021 and opt to take it all at once in 2022 as a tax credit. The IRS has set up an online web site where people can log in and make that selection. This may be wise if your 2021 income is expected to be significantly more than your 2020 income and above the phase-out threshold. Contact your tax preparer to discuss your options.
To discuss any family law matters, call Kruse Family Law, PLLC at 612.231.9865 or email firstname.lastname@example.org.