Expanded Child Tax Credit for 2021
As part of the recent COVID-19 stimulus package, the child tax credit was expanded to $3,000 from $2,000 per child ages 6 – 17 and increases to $3,600 from $2,000 per child ages 5 and under. The full amount of the credit is available to families with 2020 or 2019 adjusted gross income (“AGI”) of less than $75,000 for single parents and $150,000 for a married couple filing jointly, and phases out for individuals earning up to $95,000 and married couples filing jointly making up to $170,000, though these higher earners may still be eligible for the regular child tax credit. After any reduction of the increased credit amount is calculated, the former income limits are then applied to the remaining credit amount. So, for joint filers with a modified AGI of $400,000 or more and other taxpayers with a modified AGI of $200,000 or more, the credit is subject to an additional reduction – possibly to $0.
Moreover, instead of providing the tax credit in one lump sum after you file your taxes in spring of 2022, the recent change allows families to receive half of that money in monthly installments in 2021. Once the credit amount is determined, eligible taxpayers are automatically enrolled in the program to receive 50% of it as advance monthly payments from July to December 2021. The monthly payments amount to a maximum of $250 per month for each child between the ages of 6 and 17 and $300 per month for each child age 5 and under. These payments will be made on July 15, August 13, September 15, October 15, November 15, and December 15, and the remaining 50% will be claimed as a credit on your 2021 tax return.
Opting out of Advanced Payments
Taxpayers can choose to opt out of receiving the advance payments. Families who tend to owe money to the IRS when they file their taxes, or self-employed parents that make quarterly estimated payments, may want to save the full credit until next year, as opposed to getting half of it in advance, because the benefit offsets what they ultimately have to pay. Another reason that a family might want to opt out of their advanced monthly payments is if their adjusted gross income increased in 2021. That could mean that they’re eligible for less credit than they received and may owe the IRS.
Divorced or separated parents
Families where parents are separated or divorced and share custody of children may want to opt out of the advanced payments to make their tax filing easier. Many parents alternate who claims the children, and thus who would receive the credit, on a yearly basis. Since the IRS is going off of mostly 2020 tax information, money would be sent to the parent who claimed the children in that year, but that might not be the parent whose turn it is to claim children in 2021. Opting out of advanced payments may protect parents from potentially having to pay the credit back if it wasn’t their year to claim the kids.
You can still pause the monthly payments through an online IRS portal (see link below). The last day to tell the agency not to send the next payment is Aug. 2nd. Otherwise, please makes sure to save copies of the amounts received each month so that we can report them accurately on your 2021 tax return. If you have any questions about whether opting out of the payments is the right choice for you, please reach out to Geeslin Group.
https://www.irs.gov/credits-deductions/child-tax-credit-update-portal