Curious about what to expect from the 2021 Child Tax Credit? The basic structure is that families will receive $3,000 for each dependent child who is between six and 17 years of age.
For younger children, the tax credit is $3,600. Since this is a tax credit, the money you receive is taken from your taxes.
Qualification for the Child Tax Credit
Many parents will receive the full credit, but higher income families will receive a smaller portion. For example, if you are filing as an individual with $75,000 or less in modified adjusted gross income, you qualify for the entire tax credit. The same applies to married couples filing jointly who make less than $150,000.
The last tax return you filed with the IRS is used to decide whether you qualify based on your adjusted gross income (AGI) and how old your children are.
There are also a few other requirements for a child to qualify for the credit. For example, they must be claimed as a dependent, a United States citizen, and living with you six months or more during the year. If you aren’t sure whether you qualify, an experienced Tucson tax attorney can help you.
Understanding How Tax Credits Work
Many people get confused about what tax credits are and how they work. Essentially, a tax credit is a certain amount that is subtracted from whatever taxes you owe. For example, if you owe $2,000 and qualify for the $3,000 credit, the extra $1,000 is provided to you as a tax return.
In many cases, these credits have a floor. That means a certain amount needs to be paid in taxes to qualify. However, this particular tax credit does not have that requirement.
How To Receive the Tax Credit
Child tax credits can be collected on a monthly basis due to the American Rescue Plan Act of 2021, so there is no need to wait until tax filing time. There are two options available to you.
The first option is to wait and get the entire claim when you file your taxes in 2022. This will lower the amount of taxes you need to pay and could create a more significant return.
The other option is to receive half the claim in monthly installments in cash beginning in July of 2021 and going through December. The other half is used as a typical tax credit when you file.
Those who want to use the first option will need to opt out of cash payments. This can be done at the Child Tax Credit Update Portal. This portal can also be used to provide the IRS with information about changes, such as the birth of a new child.
The Child Tax Credit and Separated Parents
Like the stimulus checks that gave an additional amount to people who have children, this tax credit is based on the last filed taxes. As such, whoever claimed the child on their 2020 taxes will receive the tax credit.
Some parents alternate who claims the child from year to year, so this could balance out the stimulus packages. Separated parents who are on good terms can also choose to share the money with the other parent.
However, if there are arguments about who deserves the money from the tax credit, there are other options. It’s possible to file with a court to decide who should receive the tax credit.
If you decide this is the right option for you or you need other assistance with your decision, reach out to an experienced tax attorney at Guardian Tax Law. We can help you understand all your options and work through the process with you.