Beginning on July 15th, the IRS will begin sending out monthly Child Tax Credit payments to those who qualify. You may have received a letter if they have determined you qualify, informing you of the upcoming payments. Many people are unsure of how it all works, so we are going to break it all down.
In order to qualify for the Child Tax Credit payments, you will have needed to claim the credit previously on a 2019 or 2020 tax return. If you are a non-filer who used the IRS tool to receive the Economic Impact Payments, you also may qualify. You (or your spouse) MUST have a main home in the US for more than half the year and have a qualifying child under the age of 18 at the end of 2021.
The IRS will use information that has been provided to them to determine eligibility. Anyone who they determine qualifies will automatically be enrolled in the advanced payments. If you wish to receive these payments and meet the criteria above, you do not need to do anything. The IRS has automatically enrolled anyone who meets the conditions.
The amount you receive will depend on the age of your child(ren). For children ages 5 and under, you will receive monthly payments of $300 – totaling $1,800. For children ages 6 to 17, you will receive $250 monthly – totaling $1,500. The payments will be disbursed on July 15th, August 13th, September 15th, October 15th, November 15th, and December 15th.
Be conscious of the income limits for 2021 that go along with the CTC. If married filing jointly, the income limit is $150,000, head of household limit is $112,500, and $75,000 for those filing as single or married filing separately. Once you reach those limits, the credit is reduced to $2,000 per child. If you exceed $400,000 – married filing jointly – or $200,000 – for all other filing statuses – then you will begin to phaseout by $50 for $1,000 that exceeds that limit.
Things to note:
At the beginning of 2022, a letter will be sent out to everyone who received any Child Tax Credit payments stating exactly how much was received. This will need to be used when filing your 2021 taxes. The IRS has provided a very detailed Frequently Asked Questions page that goes into more specific questions and scenarios.
Please keep in mind that these payments are an advance on the Child Tax Credit that is applied when you file your taxes. If you decide you want to opt out of receiving the payments – either because you prefer the credit all at once or because you believe you will exceed the income limits – you have to do so on the IRS website.
If you have a more complicated situation, it is important to make sure you speak with an accountant on what the best move is for you. If you want to see how CPA On Fire can help you and your business during these times, schedule a free financial review.