News & Updates
June 28, 2021
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Certified Public Accountants and Consultants |
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2021 Advanced Child Tax Credit Payments |
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Starting in July, millions of families across the U.S. will be eligible to receive advanced payments from the 2021 child tax credit thanks to the American Rescue Act, which was signed into law in March 2021. The Act significantly increased the Child Tax Credit for the 2021 tax year with hopes to reduce child poverty across the nation and provide many American families, in need, with additional funds to help financially support their families.
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2021 Child Tax Credit
For the 2021 tax year only, the American Rescue Act has increased the child tax credit amount to $3,600 for each qualifying child under the age of 6 and $3,000 per qualifying child between ages 6 to 17; up substantially from the prior year in which the credit per child was $2,000. The credit is a fully refundable credit, meaning, if the amount of the credit is larger than the tax owed, the difference could result in a refund. Prior to this year, the refundable portion was limited to $1,400 per child. Qualifying families can potentially receive half of this credit in advanced payments starting in July. The other half of the credit will be claimed when filing their 2021 tax return in 2022. Many families will receive payments of up to $300 per month per qualifying child under 6 years old and $250 per month per child for children ages 6 to 17. The IRS will begin sending out letters explaining their monthly benefits which is to be calculated based on the information from their 2020 tax return. For taxpayers who have yet to file their 2020 tax return, the IRS will calculate the benefits based on the information reported on their 2019 tax return. Most families do not have to take any action in order to start receiving the advanced payments. For those who wish to opt out of receiving the advance payments, this option is also available. The IRS plans to distribute the benefits via direct deposit or check around the 15th of each month until the end of this year. The Biden Administration is aiming to extend the expanded credits through 2025.
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The child tax credit is claimed on the taxpayers return every year and helps reduce their tax liability. Since the taxpayer will receive half of the credit in advance, the other half of the credit will be claimed when filing their 2021 tax return. Choosing to accept the credit in advance could affect the taxpayer’s refund amount or tax liability when filing their 2021 tax return. Many families should consider how this change could potentially affect their return next year. |
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Income Thresholds
The modified adjusted gross income thresholds for families to begin receiving the advanced credit is up to $75,000 for single filers or married and filing separate; $112,500 for head of household filers; and $150,000 for married filing joint returns or if filing as a qualifying widow or widower. The credit will phase out for incomes above these thresholds and will be reduced by $50 for each $1,000 of AGI over the applicable income threshold limit. Additionally, higher income families (ex: married filing jointly couples with $400,000 or less in income or other filers with $200,000 or less in income), will still be able to claim the same $2,000 per child credit from the prior law, but also have the option of receiving the advanced payments, keeping in mind that their tax liability could increase when filing their return. Again, the IRS will calculate the monthly benefit amount based on the information reported on their 2020 or 2019 tax return.
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IRS Child Tax Credit Update Portal and Non-filers Sign-Up Tool
As of Tuesday, June 22, the IRS has created two new online tools to help families navigate their advanced payments or allow non-filers to sign up to receive the advanced credit. The Child Tax Credit Update Portal allows taxpayers to verify their eligibility for payments, make changes to their monthly payment amounts, add additional information that could alter their monthly payment amounts (ex. Adding a newborn child) and have the option to unenroll or opt out from receiving the monthly payments and instead receive a lump sum when they file their 2021 tax return in 2022. The portal may require taxpayers to create an IRS account to access these tools. Taxpayers who already have an existing account with the IRS may use the same log in information to access the portal.
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Another online tool unveiled by the IRS is the Non-Filer Sign-up link. This link will allow non-filers or low-income families who are not required to file a tax return to enroll in receiving the monthly advanced payments. The IRS also specified that taxpayers who are not required to file but still want to claim the 2021 advanced credit payments can also do so by either filing simplified returns or electronically filing a 2020 tax return with zero adjusted gross income.
Taxpayers may also use the Tax Withholding Estimator tool on the IRS website which can help estimate how much they should be withholding from their paychecks and how the advanced credit could affect their tax liability for the upcoming tax year.
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Keeping track of Advanced Payments
It would be wise for taxpayers who are planning on receiving the advanced payments to keep track of how much they receive between June through December. This information will need to be reported on their 2021 tax return to help determine the remaining tax credit allotted for the 2021 tax year. Taxpayers are expected to receive a letter towards the end of the year on the total amount of the credit they should have received. As mentioned before, this temporary change could affect the taxpayers tax return or tax liability when filing their 2021 tax return. The IRS could require taxpayers to pay back the excess amount of the advanced credit back.
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Griffing & Company, P.C. is here to help
With numerous tax changes on the horizon, it is important for taxpayers to evaluate their financial & tax situation and plan for any changes that may arise in the coming tax years. Let us help you or someone you know determine the effect of these changes. Please contact our office today so that we may help you achieve that peace of mind!
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Credible Sources to Cite
AICPA, Accounting Today, Journal of Accountancy, IRS.gov, Kiplinger
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GRIFFING & COMPANY, P.C.
One Sugar Creek Center Blvd., Suite 650
Sugar Land, TX 77478
(281) 491-8866 Fax (281) 491-8998
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