We have received many questions and concerns about the changes to the child tax credit (CTC), so here is a summary of the changes, how it will effect your tax return, and options you have.
First off, the child tax credit has been increased from $2,000 for each child under 17 to $3,000 for each child age 6-17 and $3,600 for each child under 6 years of age. This increase to the credit will begin to be phased out for adjusted gross incomes over $75,000 for single or $150,000 for married filing joint, but the original $2,000 credit remains the same as in prior years. In addition, the IRS is introducing an advanced payment of these credits to help families with monthly expenses rather than have a large tax refund on April 15 and nothing for the rest of the year.
How will this effect your tax return? These advanced payments will begin July 15 for a total of 6 payments in 2021. Since that is only half of the year, you will only be receiving half of the tax credit in advance for 2021. For example, if you have a child age 6-17 qualifying for the $3,000 CTC then you will receive half of that ($1,500) over 6 monthly payments ($250/mo) and then when you file your tax return you will be able to claim the other half of the credit. Please note that in this example the CTC on your tax return for 2021 will only be $1,500 compared to the CTC in 2020 of $2,000. Your refund when you file your taxes will go down compared to past years because you are receiving this tax credit in advance. After 2021, the CTC will be paid out in full over 12 months, which will eliminate the CTC from your 2022 tax return.
The IRS is automatically doing the advancement of the CTC for all qualifying tax payers. If you do not need/want a monthly advance of your CTC then you must take action. Please follow the link below to unenroll from advance payment on the IRS website.
https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
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