The IRS says it has started sending letters to people who may be eligible to pay monthly child tax in advance.
While the $1.9 trillion American Rescue Plan Signed by President Joe Biden in March, made headlines because of payments of $1,400 sent to millions of people as financial relief during the COVID-19 pandemic, the stimulus package also enacted several changes to the children’s tax credit.
Among the changes was the increase in the tax credit that people can receive. Prior to the American Rescue Plan, the child tax credit was worth up to $2,000 per eligible child. This year, the credit is worth up to $3,600 per child, depending on age. Many people are unsure whether they are eligible for credit and how they can receive it.
VERIFY viewer Kathryn asked: For children born in 2021, are they eligible for the $3,600 expanded child tax credit?
Yes, eligible parents will be able to get a $3,600 child tax credit for children born in 2021.
WHAT WE FOUND
The child tax credit has been an option for decades to help families offset their tax obligations, according to Mark Steber, senior vice president and director of tax information for the Jackson Hewitt Tax Service.
“It’s just a tax credit on your income tax return, which is different from a tax deduction,” Steber said. “It’s a dollar-for-dollar offset of any income tax liability you might have based on the number of children you have who are qualified dependents. And there are some other limits: relationship, income level, and so on. ”
The maximum child tax credit this year is $3000 for dependents aged 6-17 and $3600 for dependents aged 5 and under. according to the IRS.
Therefore, people who have babies in 2021 will be able to claim a child tax credit of up to $3,600 as long as they meet the other child tax credit requirements.
Maximum child credit is available to people at the following income levels:
- $75,000 or less for singles
- $112,500 or less for heads of households
- $150,000 or less for couples requesting a joint declaration and eligible widowers and widowers.
Some people above these income limits still qualify for a child tax credit, but not the maximum amount. The usual $2,000 child tax credit is still available to single registrars earning up to $200,000 and joint registrars earning up to $400,000, according to Congress Research Service. The $2,000 credit is then phased out above these revenue thresholds.
Qualifying for the child tax credit is one thing, but getting it is another. The IRS is giving people two options this year. One option is through monthly advance payments, a change to the American Rescue Plan.
Advances will begin shipping on July 15th, according to the IRS. Payments, which will be sent by direct deposit or check, will continue to be made monthly on August 13th, September 15th, October 15th, November 15th and December 15th. Each payment will be worth up to $300 per month for each eligible child aged 5 or under and up to $250 per month for each eligible child aged 6 to 17, says the IRS. In total, monthly payments can add up to 50% of the child’s tax credit, with parents being able to get the rest of the credit when they file their 2021 taxes.
The IRS is using 2019 and 2020 tax filing information to determine who is eligible for advance payments. As a result, the agency will likely not know that a family is eligible or eligible for an additional child tax credit due to the birth of a child in 2021.
These parents can get the child tax credit through the second option, which is a lump sum credit when they file their 2021 taxes. Traditionally, this is how their child’s tax credits are redeemed.
the IRS says it will we will soon announce an online tool which will allow people to opt-out of receiving monthly advance payments, as well as update their information about income changes, case status and the number of eligible children. When this information is updated, parents should start receiving monthly advance payments.
The idea behind advance payments is to make some of the child tax credit reach people sooner, Steber said.
“There is this tax benefit stopped for people to take,” he explained. “And some think you’re waiting until January next year, waiting until April, okay. But since you know that many of those 40 million people will get paid, it might be a good idea to pay up front. This isn’t cheating the system, it’s not doing anything but getting taxpayers’ money sooner.”
The IRS on June 7 announced that started sending letters to over 36 million families to notify them, they may be entitled to prepayment of the child tax credit. Eligible people will receive a second personalized letter listing an estimate of their monthly payment.
The child tax credit increase is currently set to expire at the end of the year. Without new legislation, the child tax credit in 2022 will revert to the standards that were in effect before the American Rescue Plan. President Biden, as part of the $1.8 Trillion American Families Plan, proposed to extend the child tax credit changes until 2025.
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