When the American Rescue Plan of 2021 was signed into law, it included relief for millions of Americans. One of the provisions was the expanded Child Tax Credit, which incorporated monthly cash prepayments for taxpayers who qualify for the credit.
The annual Child Tax Credit is $3,600 per child under 6, $3,000 for children ages 6 to 17, and $500 for 18-year-old children or full-time students who are 19 to 24. Under the new plan, half of the credit will be received in monthly installments from July through December 2021 and half of the annual credit will be claimed when filing 2021 taxes.
To be eligible for the full credit, taxpayers must meet the annual income requirement of $75,000 or less if filing individually and $150,000 or less if married filing jointly. Eligible families will receive six payments of up to $300 per child under 6 and up to $250 per child 6 to 17.
For some families, the advance cash payments may end up significantly affecting tax liability when it is time to file 2021 tax returns. Taxpayers who have an increase in income or change of eligibility in 2021, usually receive a large refund, or typically break even may end up owing the IRS in April.
Depending on your situation, it may be wise to opt out of the advance payments or at least set some of the money aside. The IRS created an opt-out portal for taxpayers who do not want the monthly payments and would like to take advantage of the full credit when filing taxes.
To unenroll from advance payments:
Every situation is different and the professionals at Rodefer Moss are monitoring updates. If you have questions or need help with tax planning, we are here to help.