Expanded Child Tax Credit for the year 2021

Expanded Child Tax Credit for the year 2021

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The Legislation passed March 11, 2021 has expanded the amount of Child Tax Credit (CTC) available to taxpayers. Here is a short synopsis of these changes.

The new law changes the “qualifying child” age to one who has not turned 18 as of 12/31/21, or 17 and under.  This age requirement is only for 2021 and only for the CTC. Please note there are requirements other than age to be a qualifying child. In general the child must live with the taxpayer in the United States, for more than half the year and be a US citizen.

Once a qualifying child has been identified, the CTC for 2021 increases from $2000 per child to $3600 for each child under 6 and increases to $3000 for each child between 6 & 17.  The credit amount is phased out based on a modified income calculation, which is not discussed in this article.

The legislation directs the IRS to make advance monthly payments of one-half the estimated annual CTC starting in July of 2021 and ending in December 2021.  This means the advanced amount will NOT be available on the 2021 tax return.  A very important note is that if the taxpayer does not want the advance payments, they MUST unenroll.  Per the IRS, the unenrollment instructions will be available by June 30, 2021.  Unenrollment should be done as soon as possible as the first payment is July 15, 2021.

Here is an example:  For a 4 year-old qualifying child the total credit for 2021 would be $3600, the advance payments would be 50% or $1800.00. The monthly amount received would be $300 each month July – December 2021. Only $1800 would be available for credit on the 2021 tax return.  For a 6 year-old qualifying child the total credit for 2021 would be $3000, the advance payments would be 50% or $1500.  The monthly amount received would be $250.00 each month July – December 2021.  Only $1500 would be available for credit on the 2021 tax return.

Taxpayers who have filed their 2019 or 2020 tax returns and had qualifying children on the return should be receiving IRS letters soon, if you haven’t already.  One with a brief discussion of the credit and one on how to unenroll from the advance payments.  Non-filers will use a tool at IRS.gov to sign up for the credit.

Please call our office with any questions or help in calculating your 2021 advance or to discuss opting out of the payments.   Always here to help.

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