Last Friday, millions of American families started receiving monthly Child Tax Credit payments. Under the American Rescue Plan, each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. Normally, anyone who received a payment this month will also receive a payment each month for the rest of 2021 unless they unenroll. Besides the July 15 payment, payment dates are: Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.
Details include:
- Parents who are married and filed a joint tax return with an adjusted gross income (AGI) of $150,000 or less in 2020 and head of household filers with an AGI less than $112,500 qualify for the maximum monthly payments this year. Single filers who earn less than $75,000 can also qualify for the whole benefit, but most eligible single parents are able to file as head of household.
- Parents with an AGI higher than $150,000 for joint filers or $112,500 for heads of household will not be eligible for the full amount of the benefit, but most households will qualify for at least a portion of it. The credit phases out before cutting off entirely at $440,000 for joint filers and $240,000 for heads of households.
- It is possible to opt out of the monthly payments and instead receive the benefit as a lump sum credit at the end of the year. Parents looking to opt out can visit the IRS’s web portal to unenroll from advanced payments. Note that we are hearing reports of many taxpayers that have opted out of the payments, but still received the payments.
- While some experts have predicted that ongoing child benefit payments will help with childhood poverty, others believe monthly tax refund payments to be less helpful than a larger, one-time payment. Everyone’s situation is different, and while monthly payments may be more advisable for most, there are a few situations where opting out may be a better decision, for example, if you typically owe money to the IRS with your Form 1040 or share custody of child.
- If you have grown accustomed to having that credit in your tax return, it is important to realize that you will have a lower refund or higher tax to pay in April 2022. The Child Tax Credit payment is an advanced payment of the credit toward your taxes that you typically receive on your tax return, now you will be receiving it as a monthly payment instead of as the normal tax credit.
- For this credit, the IRS will likely send everyone a 1099-G or some type or tax reporting document, but we are not certain as they have not said either way. Therefore, those receiving advance cash payments of their 2021 child tax credit, should keep track of the advance cash payments you receive each month for the six-month period and then report the total amount received to your tax preparer for inclusion on your 2021 Form 1040.
For more information, click www.IRS.gov/childtaxcredit2021 or call a member of the Crosslin tax team at (615) 320-5500. We are here to help!
