Beginning July 15, a new federal law will make parents eligible for a new monthly payment for each child.
This is called an advanced child tax credit, and the monthly payments are tied to your income tax. If parents qualify, they can receive half of their annual tax credit in the form of monthly payments. Parents receive the other half of the discount with their income tax return.
Portion of theAmerican rescue plan, which President Joe Biden signed in March, the new advances add to the child tax credit, which has been around in one form or another since 1997. The amount has increased over the years and will increase again with the new program on July 15. For the time being, the advances and increased amounts will run until 15 December 2021.
Here's everything you need to know about the payments parents will receive in a few weeks:
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What is the child discount?
With the new child tax credit, parents pay part of the tax credit they receive at the end of the year in monthly installments. Parents then report on their April tax returns that they have received these payments – and claim the other half of the discount.
A tax credit is the amount that you may deduct from the income tax you owe to the government. For example, if you qualify for a $1,000 tax credit and you owe $3,000 in income tax, the amount you owe in taxes will be reduced to $2,000.
Parents with children under age 6 are eligible for up to $3,600 per child, or $300 per month. Parents with children ages 6 to 17 are eligible for up to $3,000 per child, or $250 per month with advances. For the time being, however, these increased amounts and advances will expire at the end of 2021.
Michael Jamison, president of OnTarget CPA, said the government sees these tax credits as a way to support parents, offset the costs associated with having children and "provide some measure of support for children throughout the year." .
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How does the child tax credit differ from the child tax credit that currently exists?
Previously, parents could only fully claim the tax credit when filing their tax return. New are the prepayments, where half of the credit is offered in monthly installments and half can be claimed in April or when the tax return is filed.
The amount of this tax credit has been increased from $2,000 for all children to $3,600 for children under the age of 6 and $3,000 for children between the ages of 6 and 17.
Currently, the new tax credit program expires at the end of 2021 unless a new law is passed.
Who is eligible for the child discount?
Parents with at least one child under the age of 18 who meets the income requirement are eligible for the full deduction.
To qualify for the full tax credit, filers must earn less than $75,000 if filing alone, less than $150,000 if filing jointly as a married couple, and less than $112,500 for "Head of Household" filers such as unmarried single parents.
"If you earn more, it doesn't mean you don't get any of that credit; it just gets reduced to a lower amount," Jamison said.
If you earn more than the income limit to qualify for the full amount, your tax credit will be reduced by $50 for every $1,000 your income exceeds the maximum, until the credit amount reaches $2,000.
If your income is $400,000 collectively, or $200,000 alone, the second phase-out will begin. In the second phasing out, the amount of the tax credit is reduced by €50 for every €1,000 that your income exceeds €200,000 or €400,000, depending on the circumstances.
You must also reside in the United States for at least six months each year, and the child must live with the parent claiming the child's dependency for at least half of the year.
To be eligible for the credit, your child must not turn 18 before 1 January 2022. If you welcome a child at any time in 2021, you'll be eligible for the full credit, Jamison said.
How much will the payments be?
Under the full tax credit, monthly payments are $300 per child under age 6 and $250 per child ages 6 to 17.
These payments are half of the credit: $1,800 for younger children and $1,500 for older children. Parents claim the other half of the tax credit with their tax return.
The advances and the increased amount currently expire at the end of 2021. Without new legislation, the tax credit will revert to $2,000 per child, with no prepayment option.
How do I receive the prepayment of the child discount?
You can receive the advance on the child discount by direct deposit or by cheque.
If you have previously set up a direct deposit with the IRS, you will receive payments in that bank account. To check your eligibility and your bank account details, you can do thatvisit the update portal for the child tax credit.If you have signed up for direct deposit, you will see your routing number and the last four digits of your account in the portal.
All payments, including the July 15 payment, will be delivered by direct deposit if you have opted in. To change the account details for the August payment, you can update your account details on the portal.
The payment cannot be split between accounts and only one account number per recipient is allowed.
If you are not signed up for direct deposit, you will receive a check. To switch from receiving checks to direct deposits, you can add your bank routing number and bank account informationin the portal.
The IRS encourages families to set up direct deposit rather than check receipt because parents will get the money faster and the risk of lost or stolen checks is eliminated.according to their website.
How do I apply for the child tax credit on my taxes?
To offset this against your taxes, you must declare and keep track of the advances you receive in 2021. You then state the amount and reconcile it with your tax return with the amount to which you are entitled.
"The amount you get should be entered on your tax return," Jamison said. "So the amount of an advance you receive... you need to be sure to declare that when you file the return."
When will I receive the payments?
For those who qualify and have not opted out, the first payments will begin on July 15.
The payment schedule is set for the rest of the year.Families receive payments on these dates: 15 July, 13 August, 15 September, 15 October, 15 November and 15 December.
Is it better to waive the monthly payments?
It depends. If your eligibility changes during the year (say, you receive a pay raise), then it may be better to wait and claim the full amount when you file your tax return, Jamison said.
If another family member (such as an ex-spouse) is eligible to claim your child as a dependent, or if you live outside the US, you may also want to opt out.
It's too late to opt out of July monthly payments, but families can opt out of August payments before August 2.
If you want to waive the monthly payments and request your full amount with your tax return, you canunsubscribe via the update portal for child tax credits.
If you do not opt out of this advanced credit and your eligibility changes, you may be required to pay a balance when you file your return. However, if you waive the monthly payments, you can still receive the full tax credit based on your 2021 income when you file your income tax return, Jamison said.
"It's not like you're going to lose anything," Jamison said. "You just get all that money with your tax refund, instead of getting it up front."
How long does the advance payment of the child discount take?
For the time being, the advance payments for the child discount will only run until the end of 2021.
“Congress could obviously choose to extend (or change) anything they do for 2022,” Jamison said. "But this is currently only for the end of the year. And next year it will return to the regular."
Do I need to submit an application or registration to receive the child discount?
No. You are automatically eligible for the child tax credit if you meet the conditions and have filed your tax return in 2020.
If you have not filed your taxes in 2020, you can still file your back taxes to receive child tax credit prepayments.
If you were not eligible for a tax return in 2020, but are eligible for the tax credit, you can use theIRS' Non-Filer Enrollment Tool.To use the tool, you must provide your personal information, including your name, mailing address, date of birth, and social security or tax numbers of you and your dependents. You will also need to provide your bank account and routing numbers and IRS Identity Protection PIN, if applicable.
Do you have to repay the child tax credit in advance?
Generally not, unless you are claiming more than you actually qualify for based on your income.
Jamison recommends forgoing the advances as your income rises and your eligibility changes. If you receive the advances and your eligibility changes, you may owe money to the IRS when it comes time to file your tax return.
“What the government does is they give you this money based on the amount of income you had in 2020,” Jamison said. "But they do not yet know how much you will earn in 2021. So if you do earn more, there is a chance that you will have to repay this advanced amount."
Are dependents aged 18 and older eligible for the child tax credit?
No, but parents with adolescent children may be eligible for other tax credits, Jamison said.
Under the March stimulus package, families with children ages 18 or full-time students ages 19 to 24 whose parents or legal guardians have claimed them as dependents will receive a one-time tax credit of $500 in April 2022, when parents submit their 2021 report. income tax returns.
Contact IndyStar Pulliam Fellow Claire Rafford at crafford@gannett.com or on Twitter@clairerafford.
This article originally appeared on Indianapolis Star:Child discount 2021: What you need to know about new advance payments