Child Tax Credit Update
On March 11, 2021, The American Rescue Plan was signed into law. As part of this plan, the Child Tax Credit was expanded for 2021. Families, subject to income limitations, saw an increase in the credit from $2,000 to $3,000 per child ages 6 to 17 and an increase from $2,000 - $3,600 per child under the age of six.
In addition to raising the amount of the credit, families no longer have to wait to receive the credit until they file their 2021 taxes. Monthly payments of $250 per child ages 6-17 and $300 per child ages birth – 5 began being sent to families on July 15th via direct deposit to those who have an account on file with the IRS. For those without a bank account on file, the payments were mailed. This will result in half of the credit being paid before taxes are filed.
While there are many positive impacts for the pre-payment of the credit both for individual families and for the economy (built on consumer spending) as a whole, some are concerned that this will lead to a surprise tax bill next April for their family. For this reason, the IRS has created a portal where families can opt out of receiving the pre-payment of the credit. If they are eligible to receive it, they would then receive the full amount when they file their 2021 taxes. The income limit for the credit is $400,000 on a joint return or $200,000 for a single return.
The decision to take the credit monthly or wait until you file your taxes is a personal decision for each family. As always, with tax questions, we would recommend you discuss your situation with your tax preparer, but we are always here to discuss the matter as well.
Deanna J. Harless, CFP™