Many families have and will continue to receive advance Child Tax Credit (CTC) payments due to recent changes in the program.
The Internal Revenue Service (IRS) automatically enrolled families it considered qualified for the CTC into the advance payment program. The installments are distributed via direct deposit or mailed as a paper check.
The payments began to be sent in July and remaining 2021 advance payments will be made on the 15th of each month with the last payment on December 15, 2021.
How much is the tax credit?
The 2021 credit is $3,600 annually for children under age 6 and $3,000 for children ages 6 to 17. The credit will be calculated and shown on your 2021 tax filings, however, half of the credit, $1,800 or $1,500, will be distributed in advance in six monthly payments. This means eligible families will receive $300 monthly for each child under 6 and $250 per child between 6 and 17.
How do you qualify for the advance payments of child tax credit?
The IRS is basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. The IRS will begin with a review of your 2020 return, and if a 2020 return has not yet been filed will look to your 2019 return. The payments begin to phase out at incomes of $75,000 for individuals, $112,500 for heads of household and $150,000 for married couples.
If family circumstances change during 2021 (income levels or new children), the IRS has developed a Child Tax Credit Update Portal that can be used to update income, marital status and the number of qualifying children.
Will I need to pay taxes on the child tax credit payments?
The short answer is no. The child tax credit payments aren’t considered income, so you won’t have to pay income taxes on them.
However, if you end up getting more advance CTC payments than you ultimately qualify for, you may need to repay the IRS some of the money. This could happen if someone in the household gets a higher paying job later this year, increasing the adjusted gross income and pushing you above income phase out levels.
DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update COVID-19, COVID-19 Business Resources, COVID-19 Client News Alerts and other related communications are intended to provide general information, including information regarding legislative COVID-19 relief measures, as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.