Millions of families are eligible to receive a generous Child Tax Credit (CTC) for 2021.
The American Rescue Plan Act of 2021 expanded the child tax credit, with the most significant increases reserved for low-income families with children. President Joe Biden wants to extend this program through 2025 using the American Families Plan, which is part of his “Build Back Better” proposal.
Under the latest legislation, the credit increases to $3,000 per child or $3,600 for children under 6. It also now allows 17-year-old children to qualify. The credit is paid in monthly installments of $250 per qualifying child ($300 per qualifying child under 6). This tax credit is fully refundable, so not only can it reduce your tax bill to zero, but you might get a tax refund even if you don’t owe tax. You also do not need to have earned income, and the advanced payments are not taxable.
The IRS says tax credits will start rolling out on July 15th and continue through December with monthly payments.
If you qualify for the credit, you can take full advantage of it for the 2021 tax year if your 2020 modified adjusted gross income is under:
· $75,000 for individual taxpayers
· $112,500 for head of household filers
· $150,000 for married taxpayers filing jointly, and widows/widowers
The payments will begin to phase out by $50 for every $1,000 above these income thresholds. Eligible taxpayers must have their 2020 or 2019 tax return filed to get the advance payments.
How does it work?
1) The IRS will open two portals for families with qualifying dependents by July 1st. One portal will allow parents to opt-out of the monthly payments and collect all of it in one lump sum on their taxes later. Another portal will help those who do not
normally file tax returns to update information about changes in their income, filing status, or number of qualifying children.
2) You can either claim 100% of the credit on your taxes in 2021, or get 50% of the credit starting in July and the remaining 50% on your taxes later.
3) If you do not opt-out of the monthly payments, you will get six monthly payments from the U.S. Treasury via direct deposit starting July 15th and ending December of 2021. The remaining amount is claimed when you file your 2021 taxes.
If you have questions about eligibility or would like more information about the enhanced Child Tax Credit, or need help with tax preparation, please contact our tax professionals at The Innovative CPA Group at 203-489-0612 or via our contact form.