In today’s Q&A, we’re going over the advanced child tax credit 2021 that goes into effect this July 15th. There are a lot of changes to the child tax credit that will affect many families across the country. The government is working hard to end child poverty for all of the families who need it most. By getting monthly checks out to families as an advance from their child tax credits. This is big news for families now that the world is opening back up from the pandemic.
As a busy parent, I know how difficult it can be to stay on top of everything that’s going on. Especially, when the IRS is pushing out new information on new portals, Q&As, and dates to look out for. A lot of families didn’t know that they could opt out of the advance. With so many different family structures and changes like divorce, marriage, newborn babies, and split child custody. The IRS has had to step it up and include information for all these families.
What is the Advanced Child Tax Credit?
The child tax credit is a tax benefit that’s been around for a long time. It isn’t new and it’s not like the stimulus checks that are considered as free money. Usually, parents get $2,000 per child under the age of 16 as a tax credit that deducts how much they owe in taxes. But some temporary changes and ongoing changes to the child tax credit were added to the $1.6 trillion dollar COVID relief bill that you need to know.
Changes to the Child Tax Credit
As a temporary change, families will get half of their child tax credit sent to them in monthly installments starting July 15 until December 15, 2021. But some of the ongoing changes to the child tax credit that you should know are:
The child tax credit amount jumping up to $3,600 for kids between the ages of 0-5.
While the child tax credit jumping up to $3,000 for kids between the ages of 6-17.
If you have a child that’s 18 or between the ages of 19-24 that’s a college student that lives half of the time with you. Then you’ll be eligible for a one-time payment of $500.
Also, the child tax credit will now be treated more like a refundable credit. Meaning that if you don’t usually owe the IRS money during tax time, you will get a refund check for the amount of the child tax credit.
How Much to Expect from your Child Tax Credit?
So you might be wondering how much you should be expecting on a monthly basis for the advanced child tax credit. To be clear, half of the advanced child tax credit will be split into monthly payments for families. While the other half will be pushed towards your taxes for 2021. Meaning that if you have a child between the ages of 0-5 you will get half of $3,600. Which will equal a $1,800 split into 6 payments of $300. While the other $1,800 will be applied to your tax return for your 2021 income taxes. Now let’s say your child is between the ages of 6-17, you’ll get half of your $3,000 child credit. Which will equal $1,500 split into 6 monthly payments of $250. All while the other half of $1,500 will be applied to your 2021 income taxes.
When to expect your Advanced Monthly Payments?
The IRS has tried to make all the advanced monthly payments to hit on the 15th of each month. Unless it lands on a weekend. Here are the dates to add to your calendar for the months of July 2021 through December 2021.
July 15, 2021
August 13, 2021
September 15, 2021
October 15, 2021
November 15, 2021
December 15, 2021
As of right now, these advanced monthly payments will stop on December 15, 2021. But President Biden and his administration are working on getting this advanced child credit extended for an additional 5 years. This is something to keep an eye on and for families who could greatly benefit from this tax update.
What to do with the Advanced Payment?
For the average American family, this advanced child tax credit is a big blessing that should be taken. The one piece of advice I want to share is to make sure that you:
- Create a plan for the funds,
- Get on a budget, and
- Organize your finances.
The most important thing to do with the money is to best utilize the funds to benefit you and your family. If this means using the High-5 Banking Method, saving an emergency fund, or buying back-to-school clothes for your kids then do so. As parents, only we know what our family needs.
Income Phase Outs
Now don’t get too excited, this child tax credit does have income limits based on your adjusted gross income, AGI. In order to get the full child tax credit your AGI income will be based on your most recent tax return, either your 2019 or 2020.
Here are the first income phase outs:
Single: Your AGI income has to equal or be less than $75,000
Head of HouseHold: Your AGI income has to equal or be less than $112,500
Married Filing Jointly: Your AGI income has to equal or be less than $150,000
With every $1,000 above these limits reducing your child tax credit by $50
The second phase out will get your child tax credit back to the old amount of $2,000. With some high earning families having to owe back the advanced child tax credit if their 2021 tax return hits above the income phase outs.
Why Are Some Opting Out of the Advance?
There are multiple reasons why some families are deciding to opt-out of the advanced monthly child tax credits. Some of the reasons are due to the advance only being offered this one time and who don’t wanting to complicate their tax plans. High-income earning families who tend to owe taxes and don’t want to increase their tax bill. Also, families who prefer to get big tax return turns during tax season. All of these situations are prime reasons why some families are choosing to opt-out of the advance.
This isn’t talked about widely online, but families who are divorcing or have split custody of their kids who alternate claiming their kids may want to look into opting out. Preferably the parent who won’t be claiming the children when tax time comes around. To get more information on this please check out the references down below.
- IRS.Gov Advances Child Tax Credit 2021 Portal Link
- IRS.Gov Q&A Resources
- What you need to know about the Child Tax Credit – NYTimes
- 5 Facts About the New Advanced Child Tax Credit – Forbes
- Child Tax Credit Could Raise Issues for Divorced
- High-5 Banking Method
- How to Prepare your Finances for a Recession with an SOP
- First Aid Kit for Your Finances