Child Tax Credit: What You Need to Know
If you are a parent of a child under the age of 17, you may have heard about recent changes to the child tax credit or even received a letter from the IRS. But what is it and how might it affect you?
The stimulus package passed in March included $105 billion to expand the Child Tax Credit. This is an increase to the already existing $2,000 per child (for taxpayers claiming children as dependents).
How Much Is the New Child Tax Credit?
The standard credit increased to $3,600 per child under the age of 6 and $3,000 per child between 6 and 17.
How Will It Be Paid?
This is different from the old child tax credit because it will be (at least partially) paid directly to many, rather than a line item on the tax return. This should allow more parents to use it for childcare expenses throughout the year.
Parents should expect half of the total credit in installments monthly through December. Once tax season rolls around, expect the other half. Monthly payments (via checks and direct deposit) are starting this month (July 2021).
The monthly maximum payment is $300/child under 6 and $250 per child between 6 and 17.
You will get the maximum if your child is under 17 and Average Gross Income is below:
$75,000 and you are single
$150,000 and married, filing jointly
$112,500 and you are the head of your household
However, as AGI increases, expect the child tax credit to decrease. You will still get something if your child is under 16 and your income is below:
$240,000 and you are single
$440,000 and you’re married, filing jointly
$240,000 and you are the head of your household
How do I know if I am eligible?
If you are a tax payer who claimed the child tax credit on your most recent tax returns, you should be set to receive monthly payments. If you are unsure, you can check if you are eligible on the IRS website. It can get a little confusing for new and divorced parents.
What if I don’t want it?
If you are relatively sure you will owe at tax time, you might not want to receive these payments as they will increase what you owe.
To opt-out, visit the IRS website, create an account, and stop the monthly payments. If this is the case, you can collect the credit in the springtime when filing your taxes.
Conclusion
The new child tax credit is temporary but could be a huge relief for parents struggling to pay for childcare. If you have questions, we are here to help. Send us a note or Schedule a Meeting to discuss your individual situation.
This article is based on sources considered reliable but is not to be considered advice. Please discuss your individual situation with the appropriate professional.
