What is the Child Tax Credit?
First, you might be asking, what in the heck is the Child Tax Credit? Previous to the America Rescue Plan being passed this year you could take a tax credit of $2000 per child under the age of 17. Meaning if you owe anything in income tax your tax bill would be lowered by $2000 when you filed your return.
Previous to this bill you would have to wait until you received your return to see any benefit. That changed this year in the form of getting half your credit in monthly payments from July to December of 2021.
What is changing this year?
Other than the monthly payments mentioned above, the Child Tax Credit is increasing from $2000 per child to $3000 per child age 6-17 and $3600 per child if under the age of 6. If you have a fulltime college student age 18-24 you will receive a one-time payment of $500.
Remember, instead of getting the full amount at tax time now half of the credit will be paid out in monthly payments from July to December 2021. For each child 6-17, that's $250 per month, and $300 per month for children under the age of 6. For a family of four with two children ages 7 and 11 that's $500 per month! Wow, not too shabby!
Who is eligible?
Qualifying for the tax credit is based on a few things; your income, the number of dependents you have, and their ages. The IRS will base your eligibility on your 2020 tax return. The Child Tax Credit will start to phase out for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.
Will I have to pay it back?
This was my first thought when I heard about this but most folks will not have to pay this back. They may be some situations where this can result in an overpayment by the IRS such as a change in your tax status, income, or withholding.
The IRS is setting up an online portal by July 1st that will allow you to opt out of monthly payments and receive one lump sum at tax time if you have concerns about this. It also might be a good idea to consult your tax pro on further questions you may have.
What is your plan?
For a lot of families, this mean an additional income of thousands of dollars this year. Do you have a plan for this money? You going to save it? Spend it on something fun?
Need help figuring all this out? Book some time on my calendar and we can talk through it together.
Thanks for reading!
Coach Malcolm
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