Families with dependent children are seeing the Child Tax Credit payments hit their bank accounts or arriving in the mail this week. Designed to reduce child poverty, ease some of the financial burdens caused by COVID-19, and stimulate the economy, these payments allow parents and caregivers to receive half the child tax credit in monthly payments and the other half as a tax credit on their annual tax return. We understand these changes are a bit confusing, so our CPA firm in Raleigh is sharing what you need to know.
Who Is Eligible for the Child Tax Credit Payments?
The majority of households with dependent children are eligible to receive monthly child tax credit payments. To qualify, you (and your spouse if you filed married filing jointly) must have a dependent child who is under the age of 18 by December 31, 2021 and filed a 2019 or 2020 tax return and claimed the child tax credit or entered payment information in the IRS’s portal to receive Economic Impact Payments if you’re a non-filer.
Additionally, there are income limits in place based on your 2020 tax return. To get the full amount, single people with dependent children must earn less than $75,000 and couples must earn less than $150,000 in adjusted gross income. However, if you file as head of household, the income cap is $112,500. The payments decrease per $1,000 of income above those thresholds.
How Much Will I Receive, and When?
Parents of children who are five and under will receive $300 per month, while parents and caregivers with children who are between six and 17 will receive $250 per month per child. This is only half of your tax credit. The other half will be included in your 2021 tax return which you’ll complete by April 15th, 2022. For example, if you have one child who is three years old, you’ll receive $300 per month from July through December, then you can claim the other half, $1,800, on your tax return. If you have three children, ages 7, 10, and 12, you’ll receive $750 per month then a $4,500 tax credit in April.
The payments began on July 15, 2021, and are scheduled for direct deposit or to be mailed on the fifteenth of each month, with the exception of August. Because August 15, 2021 is on a Sunday, payments are scheduled for the 13th, instead.
Should I Opt-Out of Child Tax Credit Payments?
You don’t have to receive monthly child tax credit payments if you prefer to receive a larger tax credit on your 2021 tax return. Also, if you make significantly more than you did in 2020, or your marital status changed, you should update your information in the Child Tax Credit Update Portal on the IRS website. This will prevent any overpayment issues that you would then have to pay back on your tax return. Our experienced CPAs can guide you as to what will be the right option for you and your family.
If you’ve already received payments, you can still update your information or opt out of additional payments on the IRS website, but once you opt out, you can’t re-enroll. Also, parents who are married and file jointly must opt out separately.
Are Children Born in 2021 Eligible?
Yes. If you had a baby in 2021, meaning you couldn’t claim the child tax credit on your 2020 returns, don’t worry. You can update your information in the Child Tax Credit Update Portal any time to reflect your new arrival, so even if you have a baby in September, you’ll be able to receive monthly payments in October, November, and December.
I Share Custody, Can the IRS Split Child Tax Credit Payments?
Parents who share custody can’t both receive the child tax credit monthly payments, nor will the IRS divide it between two households. Instead, the payment will be sent to the parent who claimed the child on their 2020 tax return. In the event the parents alternate claiming the return each year, it may be more beneficial and equitable to opt out of payments, instead choosing the full amount of the credit on the tax return.
Schedule a Tax Consultation with Our CPA Firm in Raleigh
If you aren’t sure whether you should receive the monthly child tax credits or you should wait to file it all at once, or if you have other questions related to your tax return, we can help. Our experienced team provides tax consultation and tax preparation services in and around the Raleigh area and we are dedicated to helping our clients minimize their tax liability and make smart choices for the future. Schedule a consultation today by calling (919) 493-2603 or filling out the form below to get started.