July is already here, and so is the highly anticipated IRS advance on child tax credits that you normally get after filing your tax return. Keep an eye out for a letter from the Internal Revenue Service (IRS). It will be good news for you if you qualify for the new child tax credit payments, allowing you to receive these monthly payments after President Joe Biden recently signed this stimulus package into law.
Known as the American Rescue Plan Act, it allows you to receive monthly child tax credits in advance, beginning on July 15th and running through the rest of this year to December 15th.
Eligibility is based on the information you provided on your 2019 or 2020 tax returns. You should also keep an eye out for a second letter that will give you an estimate of the monthly child tax payments you can expect to make.
Determining Your Qualifications for the New Monthly Child Tax Credit Payments
You can expect a paper check or direct deposit as long as your child qualifies and your income meets the following thresholds:
-Single filers: Your modified adjusted gross income (MAGI) is $75,000 or less.
-Married filers: Your MAGI is $150,000 or less.
You can also qualify if your income is higher for the reduced child tax credit until it is phased out. For single filers, this means phasing out credit by $50 for every $1000 you earn over $200,000. And for married filers, it means phasing out credit by $50 for every $1,000 you earn over $400,000. To qualify for the monthly payments, you need to provide at least half of your child’s support for clothes, housing, food, utilities, etc., as well as claim your child as a dependent on your tax return. Your child must:
-Be 17 years old or less
-Be a U.S. citizen, national or resident alien
-Have a valid Social Security number
-Live with you for at least half of the year
-Be related to you
Your monthly child tax credit payments will be sent out by the IRS (from mid-July through mid-December), and they temporarily increase the child credit for 2021:
-$3,600 total for each child (up from the usual $2,000 per child) for each child younger than 6
-$3,000 total for each child over age six but under 18.
-$300 a month for every child under six years old
-$250 for every child over six but under 18.
As you can see, the child tax credit payments are an advance on the child tax credit normally received when filing your tax return; therefore, if you would receive $2,000 for your child under six, you would receive $300 a month from July-December (total of $1,800). When you go to file your tax return, however, you will only have $200 in credit remaining. Therefore, if your IRS refund would’ve been $3,800 before the advance, it’ll now be $2,000 when you file if you received the advance. Also, if you would’ve owed $3,000 before receiving the advance, you would now owe $4,800 when filing your taxes if you receive the advance. If you decide to receive the advance, you should budget accordingly for tax season.
Since the payments begin halfway through the year, you’re only receiving half of your annual qualifying credit. You’ll be able to claim the other half in 2022 when you file your 2021 tax return.
Are You a Non-Filer?
For people who aren’t required to file a tax return, consider filing one (or use the non-filer tool if you didn’t use it last year). That way, the IRS will have your information in their files to send out those monthly payments. Generally, you will need to file a tax return if you earned:
-Single filers: $12,400
-Married filers: $24,800
IRS Child Tax Credit Update Online Portal
This portal will be available towards the end of June. You can update any changes you may have had in 2021, such as your filing status, how many children you have that are qualified and any changes to your income. You’ll also be able to update your banking information and opt out of the Monthly Child Tax Credit payments if you want. This last one is important because you may prefer getting the full payment next year. To opt-out, visit www.irs.gov/childtaxcredt2021.<http://www.irs.gov/childtaxcredt2021.>
We hope this blog helps you understand the Child Tax Credit for 2021. Our Corporate Capital Inc. team of professionals in Las Vegas, NV, is here to help you better understand and handle your taxes. Please contact us today or give us a call at 855-371-0070 to speak to one of our experienced tax specialists!