July 15 is when the first payment of Child Tax Credit started hitting bank accounts, and it will continue every month for the rest of this year. This all-new monthly distribution was quite a change that came with the American Rescue Plan earlier in 2021. And what came with this change for American families is an increase in the child tax credit amount to $3,600 for every child under six and $3,000 for children ages 6 to 17 years old.
The most significant difference is that rather than having your Child Tax Credit come when you file your taxes, many Americans have chosen to receive monthly payments of $300 every month between now and the end of the 2021 tax year. And then, when you file your taxes at the end of this year, you’ll receive the difference. But how does this impact your taxes at the end of the year? Are you going to have to pay more than you usually would?
These are all valid questions that your friends at Maggi Tax want to make sure you understand the answers to so that come tax time. So, there are no surprises coming your way.
Why Break It Down into Monthly Payments?
The goal of the monthly distribution is to get money back into Americans’ pockets as quickly and efficiently possible, especially for those lower-income families that need the help to cover their basic needs. You’re eligible for these payments if your child received credits on their taxes last year, doesn’t turn 18 this year.
What Are the Income Limits?
Single tax filers earning less than $75,000 and those who are married and filing jointly with an annual income of under $150,000 are eligible to receive the full $3,600 or $3,000 per dependent child. The tax credits then start to phase out by being reduced by $50 for every $1,000 of income that is over that limit.
Even if you are over the adjusted gross income limits for this additional tax credit, there’s still a chance that it might work out in your favor when you file your 2021 taxes. The original $2,000 credit is still available with phaseouts beginning at $200,000 and $400,000 if you’re married and filing jointly.
How Do the Monthly Payments Work?
The monthly payment structure was initially intended to get money into the hands of American families that needed help and assistance as quickly as they could during the pandemic.
The IRS automatically enrolled you in the monthly $300 payments if you qualified. But it’s important to remember that the qualifying factors were taken from your 2020 tax information. So, if you end up making more money in 2021 or you have a child that no longer is a dependent, you may not qualify for the payment.
Fortunately, the IRS has given you two options to choose from when it comes to the Child Tax Credit:
- You can choose to keep the automatic payments coming into your account and do nothing. But if you have something like a significant income event that pushes you out of the income limits, you may want to consider the next option.
- Opt-out of the automatic monthly payments. All you need to do is go to the IRS website and fill out the online form to opt-out of receiving them and then worry about it when you file your taxes for 2021.
Take the time to look at the age of your children and whether or not they’ll qualify as dependents on your 2021 taxes, as well as consider your income level when deciding which option to choose for your Child Tax Credit monthly payments.
All of these things are essential to understanding what options are best and how the Child Tax Credit impacts your taxes this year. If you’re receiving the credit payments and have more questions about how it affects your tax filing or impacts your financial plan, give Maggi Tax a call to receive the expert and experienced guidance you can count on at 813-850-0131.