The IRS has made it official: by the end of the year, advance payments for the extended child tax deduction totaling $ 3,600 per child will be made to families on the 15th of each month. Almost all families are entitled to at least some cash, if not the full amount, although you will need to file a 2020 or 2019 tax return to apply for it. Here’s what you need to know.
What is the child allowance?
The Child tax deduction is a tax break for taxpayers with dependent children. Under the American Rescue Act, the maximum tax credit payout per child has been increased from $ 2,000 to $ 3,600, with half of that paid monthly in cash upfront for the final six months of 2021 starting July 15 (the intent is to get money into our pockets instantly so that it can best benefit families while we are still grappling with a pandemic). The remaining half of the tax credit can then be claimed as part of your 2021 tax return.
How do I get a monthly child tax credit?
According to the IRS, over 88% of American families are eligible for the subsidy; However, the amount you will receive will depend on your 2020 household income and the ages of your children. A child under the age of six is eligible for a payment of $ 3,600 and a child over the age of six is eligible for a payment of $ 3,000. Children age 18 who are also considered dependent and full-time college students ages 19 to 24 also qualify, but only for $ 500. per CNET.
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To receive full payments, taxpayers must have their gross income adjusted below the thresholds below on their 2020 tax return (and if this has not already been filed, the IRS will also use your 2019 tax return):
- $ 75,000 for individual taxpayers
- $ 112,500 for heads of household (a new proposed bill could increase that amount to $ 150,000)
- $ 150,000 for jointly assessed married taxpayers and widows / widowers
Income in excess of these amounts will result in a lapse of $ 50 for every $ 1,000 of income above the threshold. for WSJ. (CNET has a useful calculator that you can use Here).
Okay, I qualify – how do I get these monthly child tax credits?
Once you’ve filed your 2020 tax return, there’s nothing to do – payments are sent as a direct deposit (if you’ve already set one up with the IRS) or as a check in the mail.
However, since it is initially a temporary credit for the tax year 2021, You need to file a tax return for 2020 or 2019 Get the payment as this is currently the only way to prove to the IRS that your child is eligible to receive it. This is especially important if you are under 65 and earn less than $ 12,000 a year as you are typically not expected to file a tax return for income below that amount. Hence, you should file a tax return anyway to avoid putting thousands of dollars on the table (the IRS is promised to do something to address this issue).
Do I have to repay the monthly child tax credit if I earn too much money?
It is important to remember that the monthly prepayments are based on estimates. And since this tax credit is an advance based on your projected income for 2021 (based on your 2019 or 2020 return) and the number of your children, both of them may change for you later in the year. That means you might even have more money if you have another child before the end of the year that you can claim on your taxes for 2021. The risk, however, is that if you get a raise or otherwise change your situation that causes you to exceed the income limit, you will also owe some or all of the money back when you file your 2021 tax return.
To deal with this discrepancy, the IRS is building an online portal where you can update your income, marital status, and number of eligible children year-round, or skip the monthly payments altogether and apply for a flat-rate credit instead on your 2021 tax return The portal is expected to be online before July 1st.
