Changes to the Child Tax Credit

Some of the biggest changes to your 2021 tax implications are around the Child Tax Credit, so to understand how they impact you & your family, here’s what you need to know:

For those with kids, instead of receiving this credit as part of your tax return as in years past, you’ll now be receiving monthly payments from the IRS for each child, depending on their age.

The fully refundable credit, with 50% of the credit issued as advance periodic payments starting in July 2021, will be reconciled on your 2021 tax return and the IRS will issue these advance payments of the child tax credit based on your 2019 or 2020 tax return information.

These changes also include an increase of the child credit from $2,000 to $3,000 per eligible child under age 18 and $3,600 per child under age 6. This means that if your child turns 6 in 2021, you’ll still receive the $3,600 (dispersed in monthly payments) for this year. 

What if I don’t want to receive the advanced credits?

The IRS has an online portal (click here) to allow taxpayers to opt-out of receiving these advanced payments for their child tax credit and also to be able to provide information regarding changes in income, marital status and the number of qualifying children (to determine each taxpayer’s maximum eligible credit).

While the team here at ITP Taxes would love to give you a timeline on when this will happen, we simply don’t know. If you’re not on our mailing list, this would be a great time to email us and sign up as you’ll be the first to know when this portal is created. 

How do I know if I’m eligible for the increased Child Tax Credit?

For 2021, the increased credit amount of an additional $1,000 – 1,600 per child depending on how old they are begins to phase out at:

• $75,000 for those filing as Single
• $150,000 for those who are Married Filing Jointly (or surviving spouse)
• $112,500 for head of household

Once the increased credit amount is reduced, the credit plateaus at $2,000, and the next phaseout begins at $200,000 ($400,000 for MFJ).

What do I need to know if I choose to accept the advanced payments from the IRS for the Child Tax Credit?

You’ll be responsible for keeping track of these payments. We recommend creating a spreadsheet of the payments including the payment amount, date you received the payment, and method of payment. Here’s a template to get you started!

This way you can bring this information along to your 2022 tax appointment with ITP Taxes and we can easily reconcile it on your 2021 tax returns.  

We know how important it is to plan ahead, and how tricky it can sometimes be to deal with money and taxes so we want you to be as prepared as possible as we embrace this new curveball.

If you have any questions or concerns, we’re just an email away.  (Click here)