Child Tax Credit 2021- What's New?
The American Rescue Plan Act brought many changes to the child tax credit. However, these changes are temporary and only apply to the 2021 tax year.
Some of the big changes to be aware of are:
The tax credit amount has increased for certain taxpayers (credit of up to $3,600 for children 5 and younger AND credit of up to $3,000 for children up to age 17) if you fall within the threshold income limits,
the qualifying age of children was raised from 16 to 17,
the credit is fully refundable (meaning you can receive it even if you don’t owe the IRS), and
the most significant being that up to half of the credit may be received in monthly payments.
This means that the IRS will pay half of the credit in monthly payments with the first payment beginning July 15, 2021, as a prepayment of the refund taxpayer would normally receive after filling their 2021 tax return. It is important to note that opting to receive the child tax credit in advance will affect a taxpayer’s refund or amount owing when they file. Receiving the monthly payments now will cause a taxpayer to either receive a lower refund next year, or to potentially owe tax and possibly interest and penalties as well, when they normally would not.
It is a personal decision of each qualifying taxpayer whether to opt to receive the advanced monthly payments. The advanced payments may be very needed and helpful to many taxpayers, but it is important to know how the decision will affect them during next year’s filing. To understand how the child tax credit payments will affect your taxes, and to avoid and unnecessary penalties, it is important to contact a CPA to discuss your individual situation.
If you would like to learn more or to set up a consultation call Marlies Y Hendricks CPA PLLC at either 716-694-3500 or 910-769-8730.