What you need to know about the new advance payments
From July 15, parents will be able to receive a new monthly payment for each child thanks to a new federal law.
Called the Advanced Child Tax Credit, the monthly payments are tied to your income tax. If eligible, parents can receive half of their annual tax credit in monthly installments. Parents will receive the other half of the credit when they file their income tax return.
Part of the US bailout, which President Joe Biden signed in March, the new advances are in addition to the child tax credit, which has been around in one form or another since 1997. The amount has grown over the years. years and will increase again with the new program. the 15th of July. For now, prepayments and premium amounts run until December 15, 2021.
Here’s everything you need to know about the payments parents will start receiving in just a few weeks:
What is the withholding tax credit for children?
The new advance tax credit for children pays parents part of the tax credit they will receive at the end of the year in monthly installments. Parents will then declare that they have received these payments – and claim the other half of the credit – when they file their tax return in April.
A tax credit is the amount you are allowed to deduct from the income tax you owe the government. For example, if you qualify for a $ 1,000 tax credit and owe $ 3,000 in income taxes, the amount you owe in taxes is reduced to $ 2,000.
Parents with children under 6 are entitled to up to $ 3,600 per child, or $ 300 per month. Parents with children ages 6 to 17 are entitled to up to $ 3,000 per child, or $ 250 per month with advance payments. For now, however, these increased amounts and advances are expected to expire at the end of 2021.
Michael Jamison, president of OnTarget CPA, said the government views these tax credits as a way to support parents, offset the costs associated with having children, and provide “some level of support for parents. children throughout the year ”.
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How is the advance child tax credit different from the current child tax credit?
Previously, parents could claim the full tax credit only when filing income tax. Advance payments, which offer half the credit in monthly installments and the other half available to claim in April or during each tax return, are new.
This tax credit has increased from $ 2,000 for all children to $ 3,600 for children under 6 and to $ 3,000 for children 6 to 17 years old.
Currently, the new tax credit program is expected to end at the end of 2021 unless new legislation is passed.
Who is eligible for the withholding tax credit for children?
Parents of at least one child under the age of 18 who meet the income requirements are eligible for the full credit.
To qualify for the full tax credit, filers must earn less than $ 75,000 if filing alone, less than $ 150,000 if filing jointly as a married couple, and less than $ 112,500 for “chief filers”. family ”, such as unmarried single parents.
“If you earn more than that, it doesn’t mean you won’t get any of that credit; it’s just reduced to a lower amount,” Jamison said.
If you earn more than the maximum income to qualify for the full amount, your tax credit will be reduced by $ 50 for every $ 1,000 your income exceeds the maximum until the credit amount reaches $ 2,000.
If your income is $ 400,000 from joint filing or $ 200,000 from single filing, the second phase-out begins. The second phase-out reduces the amount of the tax credit by $ 50 for every $ 1,000 that your income exceeds $ 200,000 or $ 400,000, depending on the circumstances.
You must also reside in the United States for at least six months of the year, and the child must live with the parent who declares the child as a dependent for at least half of the year.
Your child must not be 18 before January 1, 2022 for you to be eligible for the credit. If you take in a child anytime in 2021, you’ll be entitled to full credit, Jamison said.
How much will the payments be?
As part of the full tax credit, monthly payments will be $ 300 per child under 6 and $ 250 per child 6 to 17.
These payments will be half the credit: $ 1,800 for young children and $ 1,500 for older children. Parents will claim the other half of the tax credit when filing income tax.
The advance payments and the increased amount are currently expected to end at the end of 2021. Unless a new law is passed, the tax credit will revert to $ 2,000 per child, with no possibility of early payment.
How do I receive the early payment of the child tax credit?
You can receive the early payment of the child tax credit either by direct deposit or by check.
If you have already set up a direct deposit with the IRS, you will receive payments into this bank account. To check your eligibility and banking information, you can visit the Child Tax Credit Update Portal. If you signed up to receive direct deposit, you should see your routing number and the last four digits of your account listed in the portal.
All payments, including the July 15 payment, will be made by direct deposit if you are registered. To change the account information for the August payment, you can update your account information on the portal.
Payment cannot be split between accounts, and there is only one authorized account number per recipient.
If you are not registered for direct deposit, you will receive a check. To switch from receiving checks to direct deposit, you can add your bank routing number and bank account information to the portal.
The IRS encourages families to set up direct deposit instead of receiving checks because parents will get the money faster and this will eliminate the risk of lost or stolen checks, according to their website.
How do I claim the withholding tax credit for children on my taxes?
To balance this against your taxes, you’ll need to claim and track the prepayments you receive in 2021. Then you’ll report the amount and reconcile it to the amount you’re eligible to receive on your tax return.
“The amount you get has to be entered on your tax return,” Jamison said. “So the amount of an advance payment that you receive… you would want to make sure that you include that when you file this return. “
When will I receive the payments?
For those who are eligible and have not opted out, the first payments will begin on July 15.
The payment schedule is set for the rest of the year. Families will receive payments on the following dates: July 15, August 13, September 15, October 15, November 15 and December 15.
These are the only installments planned, with the new program currently scheduled to end in six months, at the end of 2021.
Is it better to forgo monthly payments?
It depends. If your eligibility changes over the course of the year, like if you receive a raise, for example, it might be better to wait and claim the full amount when you file your tax return, Jamison said.
If another family member (such as an ex-spouse) can claim your child as a dependent, or if you reside outside of the United States, you may also want to opt out.
It’s too late to opt out of the July monthly payments, but families can opt out of the August payments before August 2.
If you want to unsubscribe from monthly payments and claim your full amount when filing your income tax return, you can unsubscribe on the Child Tax Credit Update Portal.
If you don’t opt out of this advanced credit and your eligibility changes, you could end up with a balance owing when you file your return. However, if you opt out of the monthly payments, you will still be able to receive the full tax credit based on your 2021 income when you file your tax return, Jamison said.
“It’s not like you’re going to lose, you’re just going to get all that money with your tax refund instead of having it up front,” Jamison said.
How long will the advance payments of the child tax credit last?
For now, advance payments of the child tax credit are only expected until the end of 2021.
“Obviously, Congress could choose to extend (or) change whatever it does for 2022,” Jamison said. “But that’s currently only until the end of the year. And then next year, it’s back to normal.”
After December, if a new law is not passed, the child tax credit will revert to the amount of $ 2,000 without advance payments.
Do I have to apply or register to benefit from the withholding tax credit for children?
No. You are automatically eligible for the child tax credit if you meet the conditions and if you filed your income tax returns in 2020.
If you haven’t filed your taxes in 2020, you can still file your tax arrears to receive the child tax credit advance payments.
If you were not eligible to file taxes in 2020 but are eligible for the tax credit, you can use the IRS’s Non-Filer Registration Tool. To use the tool, you will need to provide your personal information, including your name, mailing address, email, date of birth, social security or tax ID numbers for you and your dependents, bank account numbers and IRS identity protection routing and PIN, if applicable.
Should we reimburse the advance child tax credit?
Usually no, unless you claim more than what you are actually entitled to based on your income.
Jamison recommends opting out of advance payments if your income increases and changes your eligibility. If you receive prepayments and your eligibility changes, you may owe the IRS money when you file your tax return.
“What (the government) does is give you that money, based on how much you earn in 2020,” Jamison said. “But they don’t yet know how much you are going to earn in 2021. So if you earn more, there is a chance that you will have to pay back that advanced amount.”
Are dependents 18 years of age and over eligible for the withholding tax credit for children?
No, however, parents of teenage children may be eligible for other tax credits, Jamison said.
As part of the March stimulus plan, families with 18-year-old children or full-time students aged 19 to 24 whose parents or legal guardians have declared them dependent will receive a one-off tax credit of 500 $ in April 2022, when parents file their 2021 income tax return. tax returns.