If you claim children who are under 17 on your taxes every year, you need to know about these changes. Most of the changes are done for you, and they'll work out well on a monthly basis for most families with direct cash payments each through December.
The child tax credit is an available program to qualifying parents, or about 39 million households, raising children under the age of 17. The program is nothing new, but President Biden's American Rescue Plan will send money straight to families who need it as an advance on their tax credit.
If you have a child between 6 and 17, you've been able to deduct $2,000 per child when you file taxes. Now, you'll be able to increase that to $3,000. For children under 6, it goes from $2,000 to $3,600, and you'll get the money sooner.
"The tax credit usually is received as part of the refund process, in the spring of 2022, for example," said Amy Lins, the senior director of learning and development with Money Management International. "Now, parents have the option, if they don't opt-out, they will receive half of their tax credit immediately, starting July 15."
So what does that mean exactly? Well, for starters it's direct cash payments to families in need of money.
You no longer have to wait for it all at once in April. Starting next month, if you have kids between the age of 6 and 17, you'll get $250 a month. If they're younger than 6, you'll get $300 a month. Since we're halfway through 2021, you'll get the remainder of that credit when you file your taxes next April.
“So that is a great benefit for parents who may need that income right now,” said Lins.
If you didn’t file taxes yet, get busy. The IRS will work from your most recent return. So if you had a baby in 2020 and the IRS doesn't know about it, your amount of credit will be lower until you tell them on a tax return.
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What is the child tax credit advance?
The payments are an advance on the annual child tax credit, which – under normal circumstances – is factored into your annual tax return and would be distributed as part of your tax return. Instead, a portion of the tax credit will be delivered to eligible households throughout the course of the year, with the intention of helping families who need the money right away.
Who’s eligible for the child tax credit advance?
Similar to the coronavirus stimulus payments, eligibility is based primarily on your most recent reported annual income. You may still be eligible for some amount of the tax credit if your income is over the threshold, but not the full amount.
The income cut-offs are:
- Individuals – up to $75,000
- Single parent head of household – up to $112,500
- Married couples filing jointly – up to $150,000
If you make less than the stated maximum for your filing status and you claimed an eligible child on your tax return, you should expect to receive your first payment on July 15.
It’s important to note that the credit is fully refundable. You don’t need to have earned income (or owe income tax) to qualify.
How much will you get from the child tax credit advance?
In addition to authorizing advanced payments on the credit, the American Rescue Plan of 2021 also increased the maximum tax credit amount per child. The tax credit is now $3,600 for children under 6, and $3,000 for children 6 and up. The credit amount was previously $2,000 per child.
The advance will be 50% of your total credit, spread out over 6 monthly payments. The remaining credit amount will be factored into your 2021 tax return.
Your child’s age on December 31 is key. Children who turn 18 before the end of 2021 aren’t eligible. Similarly, children who turn 6 before the end of the year won’t be eligible for the higher credit amount.
What do you need to do to get your child tax credit payment?
If you haven’t yet filed your 2020 tax return, be sure to do so as soon as possible. The IRS will use your 2020 return to calculate your credit amount. If you’ve already filed your taxes, you don’t need to do anything. The IRS will make payments by direct deposit, paper check, and debit card. You will very likely receive payment the same way you received your stimulus payment.
If you don’t want to receive this advance, the IRS will be providing a way to opt-out of these payments. Be sure to check IRS.gov as we get closer to July 15.
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Parents who get divorced, only one of you can claim that monthly credit, it comes down to who claims the child on the tax return.