In the past, the child tax credit has been intended to provide support for each child of American taxpayers. Following the past year, however, one in which many families have faced financial struggle, the American Rescue Plan has expanded that child tax credit in an unprecedented way.
Starting July 15th, low-income and middle-income families started receiving monthly payments for each dependent child. The expansion of this credit hopes to meet the needs of the lowest-income families, and is expected to reduce childhood poverty by 45 percent.
What To Expect
The advanced child tax credit payments for 2021 have increased to $3,000 per child ages 6-17 or $3,600 per child under age 6. The advanced payments are reduced if your adjusted gross income exceeds $150,000 (married filing jointly), $112,500 (head of household) or $75,000 (single or married filing separately).
Qualifying taxpayers can expect to receive advance monthly payments between 250 and 300 dollars per child. Following receipt of the payments for the final six months of 2021, they will be able to claim the balance on 2021 tax returns. Payments will not be considered taxable income.
Who Qualifies for the Child Tax Credit
Once a taxpayer’s 2020 tax return has been filed, or you were able to receive a stimulus check from the IRS, qualified taxpayers automatically will receive this benefit.
Though households that bring in over $150,000 will receive a reduced sum, most will qualify for the standard $2,000 tax credit per child. This is available for households bringing in less than $400,000.
In addition, family members that provide the majority of financial support for a child, including foster children, grandchildren, siblings, and other relatives, qualify for the child tax credits.
In the circumstance of shared custody, only one taxpayer may claim the child tax credit, so the parents must establish an agreement on how the money will be distributed.
Why You Might Consider Opting Out of Advanced Child Tax Credits
It should be noted that if you receive the advanced payments and end up not qualifying for them based on your 2021 income, you will need to repay all or a portion of the advanced credit with your 2021 federal income tax return. If your 2021 income has changed and you don’t want to deal with the repayment, or if you would prefer to just receive a larger lump sum payment, you have the opportunity to “Opt-Out” of the advanced payments and wait to claim the credit on your 2021 taxes, should you qualify.
To unenroll starting with the August 15th payment, you must complete the following steps by August 2nd, 2021.
- Go to https://www.irs.gov/credits-deductions/child-tax-credit-update-portal
- Click on Manage Advance Payments
- Sign In or create New Account
- If you previously signed up to access an IRS.gov application, you may sign in with your existing IRS username; otherwise create a new account
- When you select the “create a new account” link, you will be required to verify your identity.
- Once you have created your account, you can unenroll from the advance payments
If you filed jointly with your spouse, you will both need to log in and “Opt Out”.
If you remain unsure of whether you qualify, how to enroll, or whether it is in your best interest to opt out, contact your local CPA in Charlotte to discuss your specific circumstances.
Please feel free to contact our office at 704-372-1167, if you have any questions or concerns.