You may have heard that, starting in mid-July, 2021, there will be an enhanced child tax credit for qualifying families. The pandemic has been a rough time financially for many families, so this enhanced tax credit might provide much-needed relief on top of other federal programs like stimulus checks and food distributions. What is a tax credit and how do you know if you qualify? We lay out all the answers here for you so you can have a better picture of what the tax credit means for you.
What is a Child Tax Credit?
A tax credit is a payment by the government to help pay off some of your owed taxes. There are a variety of tax credits and deductions connected to certain actions or occurrences in your life, such as getting married or buying a house. These credits are like a reward or an incentive. Having a child is one of the reasons for receiving a tax credit, and you get that tax credit every year until your child is 18.
How is the 2021 Child Tax Credit Different?
In the past, the child tax credit was only partially refundable, meaning some of it had to go towards your taxes and some of it could be actually given to you as usable money, and you would only receive it when filing your taxes. The 2021 child tax credit is entirely refundable and will be partially distributed in monthly installments. Additionally, the amount of money you can potentially receive has increased to $3000 for children ages 6-17 and $3600 for children under age six. Previously, the amount of the credit was $2000 per child.
Am I Eligible for the 2021 Child Tax Credit?
The advanced child tax credit is meant to help support low- and middle-income families. As such, there are income requirements to be eligible for receiving the increased credit. To receive the full benefit, a single person filing alone needs to earn up to $75,000 a year and a couple filing jointly needs an income of up to $150,000 a year. If you make more than that amount, the credit will be reduced by $50 per $1000 over the income limit until you get to the standard $2000 credit.
In addition to income, you must also be a resident in the United States for at least half the year and the child you are claiming as a dependent must live with you for at least six months, as well. The child must also have a social security number.
How Do I Get the 2021 Child Tax Credit?
If you have signed up for direct deposit with the IRS, then you should receive the money through direct deposit. Otherwise, you will receive it through a check in the mail. The payments will be made on or near the 15th of the month for the months of July-December 2021.
Will I Have to Pay the Tax Credit Back?
You will only owe money back to the government if your income status increases or other aspects of your eligibility change and you are no longer eligible to receive the advanced credit by the time you file your taxes. If you are concerned, you can opt out of receiving the advanced payments and instead receive the money in full when you file your taxes at the end of the fiscal year. You will not lose out on the money in that case–you will just not receive it in advanced monthly payments.
At DeSantis, Kiefer, Shall, & Sarcone, our financial experts can help you determine if you are eligible to receive the increased tax credit and whether or not you should opt out of monthly payments. No matter what your financial situation is, we are here to help!