The IRS has been updating credits as we all continue to live through the global pandemic, with the Child Tax Credit seeing some changes this year. In an attempt to help alleviate some of the financial burden on families, the IRS passed a recent program named the 2021 Advance Child Tax Credit Payments.
The changes to the Child Tax Credit are designed to assist families through the help of advance payments of credit as early as this summer. As part of the 2021 Advance Child Tax Credit Payments program, the IRS will pay half of the total credit amount for 2021 in the form of an advance monthly installment. The other half will then be claimed at the end of the year when you file your 2021 income tax return.
So, let’s take a look at everything you need to know for the current Child Tax Credit in 2021.
To fully understand the Child Tax Credit changes for 2021, let’s take a quick look at the credit for 2020. In 2020, returns filed for individuals were eligible to receive a $2,000 credit per qualifying child under 17. The credit would reduce the total income tax owed on the return and, to be eligible, single filing taxpayers had to have an adjusted gross income under $200,000, or $400,000 in the case of couples filing jointly.
Due to the financial impacts of the pandemic, the IRS decided to accelerate payments of the credit for 2021 in the form of monthly checks from July 2021 through December 2021. Under the American Rescue Plan, the maximum Child Tax Credit for 2021 was also increased to $3,600 per qualifying child under 6, and $3,000 per qualifying child aged between 6-17.
As a result of this change in 2021, up to half of the credit will be eligible for Advance Payments over the 6-month period. For children under 6, the credit will be $300 per child per month and for children ages 6-17, the credit will be $250 per child per month.
To qualify and enroll for the Child Tax Credit in 2021, there are a few different ways to sign up for Advance Payments. To qualify for the monthly payments mentioned your child must be 17 years old or younger at the end of the year. This is actually one year older than what was permitted in previous years.
An example of this would be if your child turns 17 in 2021, as a parent you will get to claim the Child Tax Credit for them for the final time. If your child is 18 or older at the end of 2021, then you can’t claim the credit and won’t be eligible for the monthly payments mentioned above.
The other key qualifying factor is the income under the modified adjusted gross income level. With the passing of the new Advance Payments, the IRS also adjusted the income levels. Married couples filing as joint taxpayers must have an adjusted gross income under $150,000, $112,500 for head-of-household taxpayers, and $75,000 for single taxpayers.
Once the income level is reached, the payments will be phased out to $50 for every $1,000 of income over the threshold. Enrollment is automatic based on the last filed tax return. However, if you do not want these Advance Payments, the IRS has an opt-out option on their website.
The eligibility criteria for the Child Tax Credit can come down to a wide range of reasons listed by the IRS. As mentioned, it could be due to family income, age of the child to even where they live that may determine whether they qualify.
Understanding the rules and regulations surrounding the 2021 Advance Child Tax Credit Payments can be confusing at first, but comprehension is a must in order to avoid fines and penalties when the individual return is filed at year-end. For the most up-to-date information or to opt-out of the Advance Payments, visit the IRS Website.
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