Many American families will see an increase in their child tax credit beginning in July, thanks to the enhanced credit that was included as part of the American Rescue Plan. But that’s not the case with everyone.
For some, the child tax credit will be lower this year. If you wonder why, look no further than your paycheck. Chances are, a lower credit means your earnings pushed you above a certain income level and sliced into the amount of your credit. But that might not be the only reason you are seeing a smaller CTC this year.
As CNBC reported on Saturday, the enhanced credit for the 2021 tax year expands the existing CTC to $3,000 from $2,000 for dependents 17 and younger, and provides an additional $600 for children under the age of 6. Unless you opt out, half of the credit will come in the form of advance monthly payments beginning on July 15 and continuing through December. For kids between 6 and 17, the full advance payment will amount to $250 per month. For children under the age of 6, the full monthly payment will be $300.
The other half of the credit will either come as a refund when you file your 2021 tax return or will offset other taxes if you owe the IRS money.
If you are a single parent, you can get the full credit for eligible children if your 2020 or 2019 adjusted gross income was less than $75,000. If you are married filing jointly, the full credit is available if your 2020 or 2019 AGI was less than $150,000.
However, the full enhanced credit ends for individuals earning $95,000 or above and married couples filing jointly who earn $170,000 or above. In this case, you’ll still be eligible for the regular child tax credit — but with lower monthly payments. You might also get a lower CTC if one of your kids ages out of the highest-paying age group.
It’s important to keep an eye on any changes to your income this year — especially if you or your spouse got a raise that pushes you out of your previous income bracket. In this case, you might receive higher advance monthly CTC payments than you actually qualify for, which will result in a higher tax bill on next year’s return, CNET reported.
You can always opt out of the advance payments if you’re afraid your payments might be too high. If you don’t opt out, you’ll get a letter from the IRS in January that lets you know the total amount of CTC money you got in 2021, CNET reported. You’ll need to access the information on this letter, called Letter 6419, when you file your 2021 tax returns next year.
Also, keep in mind that the credit is set to revert to its prior levels in 2022. Under those rules, taxpayers can claim a CTC of up to $2,000 for each child under age 17, according to the Tax Policy Center. The credit will decrease by 5% of any adjusted gross income over $200,000 for single parents or $400,000 for married couples.
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Last updated: July 9, 2021