Change is not always welcomed or easy, however, this one is good news! Under the American Rescue Act, the government increased what you potentially will receive for the child tax credit (CTC) for 2021. The maximum you could receive is $3,600 for a child 5 years or younger and $3,000 for children between 6 and 17 years old. Tax payers can benefit from this even if they do not have earned income and even if they don’t owe any taxes (i.e. the credit is fully refundable if your child is eligible).
A unique aspect of this is that most families that are eligible to receive the credit do not have to do anything in order to receive the funds. In addition, the payments made can be as much as $300 per month for each eligible child 5 years old or younger and $250 per month for each eligible child in the 6 to 17 year old range. This has only been approved for 2021 at this point. When families file there 2021 taxes next year, they will receive the remaining CTC benefit. This will make it a little more complicated as you will have to reconcile the advance payments you received with the actual CTC you are entitled to receive. For some, they may even have to pay back the advances received (or a portion of them) should they ultimately not be eligible for the Child Tax Credit.
Married couples earning $150,000 or less per year are eligible to receive the full credit. Single filers have an income threshold of $75,000 or less in earnings and someone filing as Head of Household can receive the maximum benefit if they earn $112,500 or less in 2021. According to The Center for Law and Social Policy, this translates into roughly 39 million families who will automatically receive the CTC advance payment.
Usually this is a credit you would receive when filing your taxes. The government has decided to advance much of the credit to the taxpayer through monthly payments. It is important to make sure whether you receive the payments or not. The advance payments will be made starting July 15, 2021 through the end of 2021. The dates that have been scheduled for direct deposits of the child credit payments are:
- July 15
- August 13
- September 15
- October 15
- November 15
- December 15
Although most families will receive the advance payments through direct deposit, the IRS does not have everyone’s banking information. For those taxpayers the IRS does not have banking information, a check will be mailed to the taxpayer’s address on record. Please note, a mailed check will delay the receipt of and access to these funds. You can use this IRS child tax credit portal to update your banking information with the IRS.
So what has changed? In summary, according to Kiplinger, “The American Rescue Plan Act of 2021 temporarily expands the child tax credit for 2021. First, it allows 17-year-old children to qualify for the credit. Second, it increases the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it makes the credit fully refundable and removes the $2,500 earnings floor. Fourth, it requires half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021.” The other general rules for the CTC eligibility still apply, for example, the child must be a citizen if the U.S.
Child deductions and credits are always a major consideration that need to be thought through in depth (especially for those in the process of divorce), as this will change in future years and we want to make sure there is an equitable sharing of these deductions and credits.
For divorced parents who alternate claiming the children on their tax returns, there are additional considerations. It is possible that in this scenario, the parent who receives the advances on the Child Tax Credit may have to return the advanced funds when filing. In turn, the other parent would get to claim the benefit when filing. Another major consideration for divorcees or those going through a divorce and wanting to alternate claiming the children on their tax returns is the healthcare coverage and whether the children are on the healthcare exchange, also known as healthcare.gov.
Scam Alert: Please be aware that any changes in the Internal Revenue Code (IRC) brings with it potential scams. The IRS is not calling tax payers to offer help in setting up these advance payments. Be careful of any offer to help with this as they may be looking to take your personal information for ill-gotten gains.
Hirsch Serman, MBA, CPA is the founder of Lifecycle Financial LLC, a company that helps those going through Divorce and other life cycle changes to navigate the financial pitfalls of a new life dynamic. Hirsch has worked in finance for over 20 years (including financial planning and tax) and has taught on the university level as well as conducted seminars for high school youth on personal finances. Hirsch is a member of the National Association of Divorce Professionals, AICPA, IL-COC, and American Association of Daily Money Managers (AADMM).
Listen to Hirsch’s radio show The Financial Wellness Hour on www.facebook.com/SinglesTalkRadio
INC., DivorcedMoms.com, DivorceMag.com, Better, The Financially Independent Millenial, The Memphis Business Journal, The New Southern, and Funding Sage and other media outlets have all covered his work in Divorce and Hirsch was selected to be a New Orleans Entrepreneur Week Fellow. Hirsch has a passion to serve others and has worked with numerous non-profit boards including the United Way and is a Trustee on the Board of Texas College. Please reach out with any comments to [email protected].