Changes To Your 2021 Child Tax Credit
The American Rescue Plan Act, passed in 2021, increased child tax credits for the 2021 return to $3,600 if under age 6 and $3,000 if age 6 to 17. These credits begin to go away once your adjusted gross income exceeds $75,000 single, $112,500 head of household, or $150,000 joint. The credit is subject to a "claw back" which means if you take this money and was not due it (discussed below) you will owe it back to the IRS when you file your 2021 tax return. The IRS is going to advance 50% of your anticipated child tax credit in equal payments from July to December 2021. You can opt out and get the full credit on your 2021 tax return by going here:
If you normally don't file a tax return because you have no requirement to do so, but would like your advance payments, you can also use that link to sign up for payments. The advance payments can truly help you and your family:
You'll get thousands of dollars of cash now for immediate needs versus in 7 to 8 months.
The advance payments are not generally subject to offset by the IRS for other debts, like past-due taxes. If you claim them on your 2021 return, they will be.
The advance payments won't significantly reduce your refund in most circumstances because the IRS is only advancing 50% of an increased credit amount.
If you usually get very large refunds and would rather have more cash now and a bit smaller refund next year, then this is perfect for you.
Consider opting out if:
You need your full credit amounts to full pay the tax you owe. You've planned your paycheck withholding for it.
You make quarterly estimated tax payments. Adjust your quarterly amounts for the anticipated credits.
Your 2021 income is significantly higher than 2020, and you will be phased out of the bonus credit amounts this year.
You don't claim your child every year due to a custody/court arrangement.
A final thought, this money is meant to help families. Look at what is best for you this year and then either take the money or opt-out. We will assist if you need advice on the credit.