Advance Child Tax Credit
Written by: Allison Schmidt, Financial Advisor, CFP®, CPA
We’ve talked to a couple parents recently who have just received two deposits from the IRS and had a couple questions. We wanted to share what we learned…
What is this? It’s an advance of your child tax credit that you will receive when you file your taxes in 2022 for 2021. The idea is to help qualifying families with immediate expenses. The maximum payment is $300 per month, per child under 5 and $250 per month, per child aged 6-17. Ages are based on the age on December 31, 2021.
How does it work? The IRS will pay half the total credit amount in advance monthly payments beginning July 15 and will come monthly through the end of the year. You will claim the other half when you file your 2021 income tax return. These changes apply to tax year 2021 only.^
Anything I should know? The key word here is ADVANCE. So, some parents should actually consider opting out. These would be people with complicated tax situations (shared custody…only one parent can claim the credit) or inconsistent income (self-employed or significantly lower income in 2020 due to COVID income disruptions).
Is this based on my income? Yes. Single filers earning less than $75k per year and married couples earning less than $150k per year are eligible for the full amount. The credit will phase out between $75k-$240k for single filers and $150k- $440k for married couples.
Is this different than previous child tax credits? Yes. In 2020 the tax credit was $2k per child, whereas this year for kids under 6 on December 31st, that credit is $3600 and for kids between 6-17 that credit increased to $3k, assuming of course you qualify based on your income.
What if I receive the credit and I don’t qualify? The monthly payments are based on the income on your 2019 or 2020 tax return, so it’s possible that you may not qualify when you file your taxes in 2021. If that’s the case, you will have to repay the part or all of the credit you received but didn’t qualify for. Again, this goes back to the fact this is an advance of a credit.
This is a quick, very high-level look at the credit. Please consult your tax preparer for more information about how this credit will work for you and your family. You can also visit irs.gov to manage payments and opt out of the credit.
References:
cnet.com: Everything parents need to know about the August child tax credit payment.
^irs.gov
