IRS Child Tax Credit FAQs – by Johan Vako

IRS Child Tax Credit FAQs – by Johan Vako, Financial Analyst

Raising kids is a special kind of experience, full of excitement, pride, and challenges. One thing families have on their side is the child tax credit that is available for parents to claim as an expense on their annual tax returns. Recently, there were changes made to the child tax credit through the American Rescue Plan Act in March of 2021 to help families as the US recovers from the economic difficulties of the COVID-19 pandemic. However, these changes are only temporary, so it’s important to know what the changes are and how to make best use of them this year.

Here are the FAQs for IRS Child Tax Credit:

• What is the maximum age for children to qualify? The new law raised the maximum age of children who qualify from 16 to 17, so parents of older teens can benefit.

• What are the new credit amounts? For children ages 5 and younger, the credit amount is $3600 per child. For children between ages 6 and 17, the credit amount is $3000 per child.

• What are the income qualifications? To fully take advantage of these credits, income for a single filer must be less than $75,000, less than $112,500 for head of household filers, and less than $150,000 for joint filers. Those with higher incomes can still benefit, but the amount phases out as the income level rises. Families with higher incomes, which are considered over $400,000, qualify for the credit amount that existed under the previous law, which is $2000 per qualified child.

• When does the filer receive these credits? Beginning July 15 and then the 15^th of each month until the end of the year, half of the credit may be taken by qualified filers in monthly installments, with the remaining half claimed when the recipient files their tax returns for 2021. For children 5 years of age and younger, the monthly payments are up to $300, and for children between 6 and 17, the payments are up to $250 monthly.

• Who qualifies for monthly payments? To qualify, filers must have income less than the previously given limits and a qualifying child under 18 years of age at the end of 2021 with a Social Security number. They must have a primary residence in the US for more than half of the year or file with a spouse who does. Lastly, they must have filed a 2019 or 2020 tax return and claimed the child tax credit on one of them (or alternately, have given the IRS their information using the IRS non-filer tool). While higher income families will only receive the previous law’s amount, as previously stated, they can also request monthly payments.

• Can those who don’t owe the IRS qualify? Yes, because the credit is fully refundable, even those who don’t owe the IRS anything can still get the child tax credit.

• What should a filer do to start the monthly payments? The IRS will use the information already on file to begin the monthly payments, so generally nothing needs to be done. If information needs to be updated, filers should use the Child Tax Credit and Update Portal. This includes number of children, filing status, or any other new information that could have an effect on the credit. For non-filers, there is also a Non-Filer Tool that can be utilized.
• How can a filer opt out of monthly payments? To opt out of the monthly payments, the Child Tax Credit and Update Portal can also be used. This is where any status checks can be made as well.

• When can these credits be claimed? As these tax law changes are only temporary, the increased credit amounts and higher maximum age for children are applied only for the 2021 tax year.

• Do babies born in 2021 qualify for the credit? Yes, newborns born in 2021 are eligible under the ‘5 years of age and under’ level for the child tax credit. If the new little dependent hasn’t been reported by July, a filer has two choices. First, the whole credit can be claimed when tax returns are filed. Secondly, the Child Tax Credit and Update Portal can be used to report the baby as a new dependent and thereby claim the monthly payment option.

The child tax credit updates may be great news for parents, providing an addition to cashflow that is always beneficial when raising a household and figuring out a budget. Because these updates are only temporary, it’s important to understand this opportunity now and see how it fits into your planning. To make sure you’re making the most of the credit, make sure to speak with a financial professional who can help you calculate the amount you can receive and whether monthly or lump sum payments suit your unique situation and needs.

Johan Vako is a financial analyst at Wall Street Alliance Group.

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