The advance payments of child tax credits is set to begin today, July 15th. As you may have heard, the IRS will pay half the total credit amount in advance monthly payments and you will claim the other half when you file your 2021 income tax return in 2022. Here is an overview of the child tax credit and how it will work.
Eligibility for the child tax credit is subject to income limitations and determines how much you will receive. Single taxpayers earning $75,000 or less, heads of household earning $112,500 or less per year and married couples earning less than $150,000 per year all qualify for the full credit. For people with higher incomes, payment amounts phase out at a rate of $50 for every $1,000 over each of the aforementioned thresholds. While there are income limitations to determine eligibility, there is no limitation on the number of children claimed as dependents.
36 million US households qualify for the child tax credit payment which amounts to: up to $3,600 for children ages 5 and younger, up to $3,000 for each child who is between the ages of 6 and 17, $500 for each dependent who is 18 years old, and $500 for full-time students between the ages of 19 an 24. If you had a baby in 2021, your newborn qualifies for the child tax credit payment of $3,600.
The timing of these payments is different from previous stimulus payments as most taxpayers will receive half of the total amount monthly for 6 months, starting July 15, 2021. Then, in 2022, the second half of the credit will be applied to the amount you owe on your 2021 taxes (which you file in 2022). Hence, the reason it is called a “child tax credit.” Your tax liability for tax year 2021 will be reduced by the “credit” you gain from your eligible dependents which will either decrease the amount you owe to the IRS or increase your tax refund.
The IRS is targeting automatic payment dates of July 15, August 13, September 15, October 15, November 15, December 15 and April 2022 for those who filed their 2020 tax returns by the extended tax deadline of May 17, 2021.
If you didn’t file taxes in 2020, share custody of your children, would prefer to opt for one big payment or opt out of the program entirely, click here to visit the IRS website as it contains several helpful links.
As always, we here to answer any questions you may have. Please call the office at (800) 560-4637 to speak with us about your individual situation.