Starting in July 2021 many American families will be eligible to receive part of their child tax credit in monthly payments. Are you elidgable? How will this impact your 2021 tax return?
If you have dependent children you should ask yourself the following questions:
- Did I make less than $400,000 if Married or $200,000 if Head of Household in 2020?
- Will I make less than $150,000 if Married, or $112,500 if Head of Household for 2021?
- Is your child going to be 17 or younger on 12/31/2021?
- Did you receive the $2,000 or $1,400 child tax credit on your 2020 tax return?
- Did you have a new baby in 2021?
Now that you have your answers in front of you, let’s walk through how the new Child Tax Credit will affect you.
If you answered no to Question 1, you will not be eligible for the new Child Tax Credit you don’t need to go through the other questions. If you answered yes to Question 1, you will be eligible and automatically enrolled in the new Child Tax Credit for 2021.
If you answered no to Question 2, then you may receive part of the new Child Tax Credit as it phases out between $150,000 and $400,000 for married, and $112,500 and $200,000 for Head of Household. If you answered yes to Question 2, then you may be eligible for the full Child Tax Credit.
If you answered no to Question 3, then your child is not eligible for the Child Tax Credit, and I highly recommend looking into having your child file their own taxes and not be reported as your dependent. You can report your child as a dependant on your taxes until they are 24 if they are a full-time student, but you only get a $500 credit, and often it is less helpful than if your child files their own taxes. If you answered yes to Question 3, then you will receive a $3,000 Child Tax Credit for each child between 6-17, and $3,600 for each child under 6 years old.
Now we know about how much your total Child Tax Credit will be, but some of that will be received during the year and some at tax time. So how do we plan for our 2021 taxes? If you answered $2,000 credit for Question 4, then you will need to keep in mind that half of the Child Tax Credit will be paid out already during the year from July through December, this will only leave $1,500 (of the $3,000 credit) or $1,800 (of the $3,600 credit) for your tax return. You may want to adjust your withholding a little so you don’t have a balance due. You can choose to ‘opt-out’ of the monthly credit payments starting in July, by visiting the IRS website and submitting the opt-out election. That way the entire Child Tax credit is used on your 2021 tax return rather than half. If you answered $1,400 credit for Question 4, this is because you didn’t have any tax due, and could only receive $1,400 of the old Child Tax Credit. You will be most helped by the new Child Tax Credit because you will receive half of your credit from July through December and then the other half will be a larger credit than what you received in 2020 on your tax return.
The monthly Child Tax Credit payments are set to start July 2021. If your child is under 6 years old you will receive $300 each month. If your child is 6-17 then you will receive $250 each month. If you got your stimulus check with a direct deposit then you will get your Child Tax Credit with direct deposit, if you got a check/debit card for your stimulus, then you will likely get your Child Tax Credit the same way unless you recently provided your bank information on your 2020 tax return.
Finally, to answer Question 5, if you have a new baby in 2021, you can visit the IRS website and notify them of your new baby so you can start receiving your monthly credit payments rather than waiting until your 2021 tax return if you want.
Please contact me if you have any tax or accounting questions.