If you are a parent, you will potentially have a little extra money showing up your way this month. The first advanced child tax credit of the year is scheduled to be introduced on July 15, 2021, so make sure you have all the eligibility aspects in place. This year, more than 90% of American families are being covered under CTC, which is equal to almost 36 million U.S. families.
The child tax credit has experienced a massive expansion under President Joe Biden’s American Rescue Act to lift millions of children from the COVID-19 fiasco. The amount that was initially fixed at $2000 per child, has now been increased to $3600 for each child who falls under the age of 6. Whereas, $3000 is the decided figure for children between ages 6 and 17.
The child tax credit is the federal scheme under which parents with eligible dependant children are granted tax benefits. The basic idea of the child tax credit is to support families and reduce the number of children living under poverty by decreasing taxpayers’ dollar-for-dollar tax liability.
The CTC offered by the federal government of the U.S. generally used to be around $2000. This figure has been expanded under the Biden administration’s American Rescue Acta to around $3600 for each eligible child falling under the age of 17. The tax credit money directly curtails your tax bill dollar-for-dollar. So it empowers more tax savings than the tax deductions.
The child tax is refundable partially in 2020, however, in 2021, CTC is fully refundable.
A lot of things about child tax credit are different this year. First, the amount has been expanded to $3600. Second, the amount is fully refundable. Third, parents with zero income can still claim CTC. In addition to these, the qualifying age has also been increased to 17.
Pandemic has been a tough situation for parents to grapple with. The expanded child tax credit will be allocated monthly in the form of direct cash payment instead of only the time when you file the tax.
Another big difference this year is the provision for advance payment. You could receive the expanded child tax credit in 2021 if you were eligible in 2020 while filing your tax return. You don’t need to wait until 2022 to file your tax return for the year 2021.
However, one should know that these changes are temporary and not mandatory for the year 2022.
Apart from having 17 years old or younger children as of Dec 31, 2021, the following are the eligibility criteria-
1. There are no minimum income criteria this year. Therefore, people with no income are also eligible.
2. Having an Individual Taxpayer Identification Number (ITIN) or Social Security Number (SSN) for both the spouse is mandatory. Children must have an SSN.
3. The child must be “qualifying children” which have different criteria to check, discussed below.
Although there is no minimum qualifying income this year to be eligible, you should know that for every parent earning $75,000 ($150,000 for married couples and $112,500 for heads of households), the amount will be less. There will be a further deduction of $50 for each $1000 earned more than the phasing out rate of $75000 by the parents.
Another mandatory qualification is that your children should be eligible for the benefit. This is based on a number of factors-
1. The child must have a valid relationship with parents- child, grandchild, stepchild or adopted child; a younger sibling, step-sibling, half-sibling, or their descendent; a foster child placed with you by a government agency.
2. Another parameter to consider is age. Your child must be 17 or under 17 years of age as of Dec 31, 2021.
3. The third criterion is residency. The child must live in the U.S. for more than six months with the parents, not in consecutive order. Non-custodial parents are an exception here. On presenting a waiver from the custodial parents, non-custodial parents are exempted from this provision. The custodial parents should agree to claim the child as a dependant.
4. The child also has to be mandatorily considered dependant for the tax filing process. They should additionally, not be providing more than half of their own support in 2021.
For every parent with a dependant child under 6 years of age, the stimulus amount is fixed at $3600 per child. This totals to $300 per month. Parents of dependant children from 6-17 years of age are eligible for $3000 per child, amounting to $250 per month.
In order to avail the tax credit benefits provided by the federal government, the parents and children have to clear the eligibility requirement. In case, a family received the amount without being qualified for it, they will have to pay back the money.
If you have already filed your tax returns for 2019 and 2020, you will get the monthly tax credit amount automatically into your bank accounts. This is also applicable if you have signed up for the CTC plan at the Internal Revenue Service.
No. You generally don’t have to repay your child tax credit. However, there are circumstances under which you might have to pay back the advance child tax credit. This might happen if you end up earning more at the end of 2021. How? Keep reading.
The money that you are receiving from the benefit in 2021 is the advance payment as families can opt for the money without filing a tax return for the year 2021. The only requirement is to have filed a tax return for 2020 successfully. This shows that your eligibility criteria for the child tax rate this year are being determined on the basis of 2020’s income.
However, if you end up earning more than last year by the end of 2021, your eligibility criteria will change. If you earned less than $75000 in 2020, you will be eligible for the full CTC amount. However, if your earnings account to above $75000 by the end of 2021, you will come under the deductible phase-out criteria.
In this case, the extra amount that you received will have to pay back by families.
Therefore, some experts are even advising to opt-out of the child tax credit this year.
If you understand the consequences of the tax credit advance that we explained above, and do not want to opt-in, you can easily choose to not avail the benefit. This can be done by visiting the IRS website and following these steps-
Step 1:- You need to access the CTC update portal. To do so you must verify your identity.
Step 2:- On the following web page you will see your eligibility and unenroll from the CTC advance payments option and fill out the form to opt-out.
The total child tax credit amount for families with dependant children under the age of 6 is $3600. This accounts for $300 per month per child. For dependant children above the age of 6 till 17, the amount is $3000 which calculates to $250 per month per child.
This amount will help the distressed families due to COVID-19 led pandemic to emerge out of the hardships, facilitating better life for American children.
The IRS will proceed with the monthly CTC payments on the following dates:
If the IRS does not possess your bank account details, it is recommended to wait for a paper check.