ADVANCE CHILD TAX CREDIT

Facts:

  • Child Tax Credit has been at $2,000 for kids under 17.

  • Temporary increase for 2021 ONLY:

    • $3,600 for kids under 6 all year

    • $3,000 for kids under 18 this year (not 17 as in other years)

  • The Advance (paid monthly) is only for ½ the new credit across July to December.

  • Advance is based on processed 2020 returns – or 2019 if not processed yet.

  • You can opt out online (and may want to) at irs.gov.

  • You will be able to change the number of qualifying children online – but not yet.

  • Calculator: Kiplinger.

If your income is under $150,000 for a couple, $75,000 Single or $112,500 Head of Household and your kids are under 18 and don’t change year-to-year, you’re fine.  You’ll get half in the months ahead and the other half on your tax return.

If your income is above those amounts, there’s a phaseout.  Use the calculator.

Please save the IRS Letter 6419 you will get in January to make sure we get your tax return correct.

More details are here and at irs.gov here.

 

Concerns (Reasons to Opt Out):

  • If your income increases to over $150,000 (Or $75,000 Single/$112,500 HOH) for 2021, the credit will be phased out.  You may only be eligible for the base $2,000. You should be OK but will have received most of your $2,000 already. That will reduce your refund.

  • If your child turns 18 this year, you may receive the advance but HAVE TO PAY IT BACK.

  • If you alternate the child with another parent, and took them in 2020, you DO NOT QUALIFY and will HAVE TO PAY IT BACK.

  • If your income increases to over $400,000, you don’t qualify for the base $2,000. If you are receiving any advance, you want to opt out.

 

 Strategies:

1.      Remember it’s just for 2021.  Consider it a windfall – unless Congress makes it permanent (The American Families Plan) later this year.

2.      Make sure you won’t have to pay it back (i.e. you’re not entitled to the full amount).

3.      If the money’s not important to immediate needs, consider establishing or increasing your emergency savings* OR a §529 account with Ohio College Advantage or your state’s fund.

4.      CALL OR EMAIL ME to discuss your particular situation.

 

* Emergency savings should be 4-12 months’ expenses depending on the number of jobs in your household, job stability, percentage of variable vs. fixed expenses, other income or investments.

This information is current as of mid-July 2021.

Families with ChildrenClare FazackerleyIncome Tax3 Comments