What's New about the Child Tax Credit?
July 23, 2021
Estimated Reading Time: 7 minutes
What's New about the Child Tax Credit?
As a part of the coronavirus stimulus plan, or the American Rescue Plan Act, some citizens may be eligible for an increase in their Child Tax Credit, and they could receive 50% of that money in advance as a part of the monthly payment program.
Tax credits allow certain taxpayers to reduce their overall tax bill, and because the Child Tax Credit is refundable, if it reduces your tax bill to below zero, you could even get the remainder (up to $1,400) in a tax refund. The coronavirus stimulus plan increased the Child Tax Credit from up to $2000 per qualifying child to up to $3600 per child younger than 6 and up to $3000 per child age 6 through 17. This increase begins to phase out for modified adjusted gross incomes above $150,000 for married filing jointly, $75,000 for single filers, and $112,500 for head of household filers. As long as your income is below $400,000 for married filing jointly, or below $200,000 for everyone else, you should still qualify for at least $2000 per child.
Periodic Payment Program
For the first time, 50% of the Child Tax Credit will be given out now in monthly prepayments, rather than on your next tax return. You will receive these payments on the 15th of each month, starting in July.
The IRS uses the income on your most recent tax return to determine your eligibility for the credit. If your 2021 income is greater than on your most recent tax return, then you will be required to give back the extra money you received through the prepayments, since those payments were based on a lower income.
Additionally, beware that when you are doing your taxes next year, you may see a lower refund or higher bill than usual, because you will have already received 50% of the Child Tax Credit through the monthly prepayments. If you would prefer to claim the Child Tax Credit as a lump sum, you can opt out of the payment program on the IRS’ Child Tax Update Portal. You must make these changes by August 2 in order to withdraw before the August payment.
How Does This Affect Me?
The qualifications for the new Child Tax Credit can be very specific and difficult to understand. Here are some examples to help illustrate how it likely works in different situations:
- A married couple (or single parent) making $75,000 with two children, one under 6 and one over 6, would likely be entitled to $6600 total. Through the periodic payment program, they would receive $550 a month July through December 2021, and then they would claim the remaining $3300 when they do their 2021 taxes.
- A married couple making $180,000 with three children, two over 6 and one under 6, would likely be entitled to $6100 total, as they are partially phased out of the coronavirus stimulus plan increase. Through the periodic payment program, they would receive $508 a month July through December 2021, and then they would claim the remaining $3050 when they do their 2021 taxes.
- A married couple making $360,000 with one child over 6 would likely be entitled to $2000 total. Their income is too high to be affected by the increase in the Child Tax Credit, but they would still be automatically enrolled in the periodic payment program. They would receive $167 a month July through December 2021, and then they would claim the remaining $1000 when they do their 2021 taxes.
Even if you are not eligible for the increase in the Child Tax Credit, the coronavirus stimulus plan could still affect your 2021 taxes. Because the IRS is now sending up to half of this credit in advance, your credit during tax season will only include the other half. Keep in mind that this change could either reduce the tax refund you are used to or result in a higher balance due. If you would rather just apply your Child Tax Credit when it comes time to do your 2021 taxes, then you can change your preferences on the IRS’ Child Tax Credit Update Portal and opt out of the monthly prepayments.
To learn more about these changes or if you have any questions, please contact the experts at Chicago Partners to set up an initial consultation. Our financial professionals are ready to serve you in any way we can.
Important Disclosure Information
Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.
July 23, 2021
Estimated Reading Time: 7 minutes
What's New about the Child Tax Credit?
As a part of the coronavirus stimulus plan, or the American Rescue Plan Act, some citizens may be eligible for an increase in their Child Tax Credit, and they could receive 50% of that money in advance as a part of the monthly payment program.
Tax credits allow certain taxpayers to reduce their overall tax bill, and because the Child Tax Credit is refundable, if it reduces your tax bill to below zero, you could even get the remainder (up to $1,400) in a tax refund. The coronavirus stimulus plan increased the Child Tax Credit from up to $2000 per qualifying child to up to $3600 per child younger than 6 and up to $3000 per child age 6 through 17. This increase begins to phase out for modified adjusted gross incomes above $150,000 for married filing jointly, $75,000 for single filers, and $112,500 for head of household filers. As long as your income is below $400,000 for married filing jointly, or below $200,000 for everyone else, you should still qualify for at least $2000 per child.
Periodic Payment Program
For the first time, 50% of the Child Tax Credit will be given out now in monthly prepayments, rather than on your next tax return. You will receive these payments on the 15th of each month, starting in July.
The IRS uses the income on your most recent tax return to determine your eligibility for the credit. If your 2021 income is greater than on your most recent tax return, then you will be required to give back the extra money you received through the prepayments, since those payments were based on a lower income.
Additionally, beware that when you are doing your taxes next year, you may see a lower refund or higher bill than usual, because you will have already received 50% of the Child Tax Credit through the monthly prepayments. If you would prefer to claim the Child Tax Credit as a lump sum, you can opt out of the payment program on the IRS’ Child Tax Update Portal. You must make these changes by August 2 in order to withdraw before the August payment.
How Does This Affect Me?
The qualifications for the new Child Tax Credit can be very specific and difficult to understand. Here are some examples to help illustrate how it likely works in different situations:
- A married couple (or single parent) making $75,000 with two children, one under 6 and one over 6, would likely be entitled to $6600 total. Through the periodic payment program, they would receive $550 a month July through December 2021, and then they would claim the remaining $3300 when they do their 2021 taxes.
- A married couple making $180,000 with three children, two over 6 and one under 6, would likely be entitled to $6100 total, as they are partially phased out of the coronavirus stimulus plan increase. Through the periodic payment program, they would receive $508 a month July through December 2021, and then they would claim the remaining $3050 when they do their 2021 taxes.
- A married couple making $360,000 with one child over 6 would likely be entitled to $2000 total. Their income is too high to be affected by the increase in the Child Tax Credit, but they would still be automatically enrolled in the periodic payment program. They would receive $167 a month July through December 2021, and then they would claim the remaining $1000 when they do their 2021 taxes.
Even if you are not eligible for the increase in the Child Tax Credit, the coronavirus stimulus plan could still affect your 2021 taxes. Because the IRS is now sending up to half of this credit in advance, your credit during tax season will only include the other half. Keep in mind that this change could either reduce the tax refund you are used to or result in a higher balance due. If you would rather just apply your Child Tax Credit when it comes time to do your 2021 taxes, then you can change your preferences on the IRS’ Child Tax Credit Update Portal and opt out of the monthly prepayments.
To learn more about these changes or if you have any questions, please contact the experts at Chicago Partners to set up an initial consultation. Our financial professionals are ready to serve you in any way we can.
Important Disclosure Information
Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Chicago Partners Investment Group LLC (“CP”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CP. Please remember to contact CP, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CP is neither a law firm nor a certified public accounting firm and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CP’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request.