How the Child Tax Credit Will Affect Your 2021 Taxes
The first installment payment of the advance child tax credit is scheduled to hit bank accounts on July 15. The payment will serve as the first of six monthly payments of $250 or $300, depending on the child’s age, amounting to the first half of the total credit. The full credit amount is $3,000 per child age six through 17 and $3,600 per child under six.
See: Why Your Child Tax Credit Might Be Lower This Year
Find: Your 2021 Baby Makes You Eligible for the Child Tax Credit
The income thresholds for the full credit amounts are $75,000 for individual filers and $150,000 filing jointly.
Whereas the first half of the credit — $1,500 per child age six to 17 and $1,800 credit per child under six — will be disbursed as monthly payments, the second half will be available to claim next year during tax time. Parents of college students ages 18 to 24 also might be eligible for a one-time $500 credit per child, for a maximum of two children, at tax time. To qualify, you must pay more than half of their expenses and claim them as depedents on your tax return.
Unique to the child tax credit of 2021 under the American Rescue Plan stimulus relief bill is that the credit is fully refundable. This means even low-income families or families with no income can receive the full benefit amount even if they owe no federal income tax.
See: Here’s Who Is Not Eligible for the New Child Tax Credit
Find: How Is the Child Tax Credit Calculated? Find Out Before the First Payment on July 15
The monthly payments are an advance of your 2021 tax credit, according to the IRS. The amount you receive will be reconciled to the amount that you are eligible for when you prepare your 2021 tax return in 2022. Most families are slated to receive half of their tax credit through the advance payments. Should you receive too little, you will be due an additional amount on your tax return.
Important to consider for your taxes next year: If your income changes and surpasses the income thresholds, you will more than likely end up owing more on your taxes next year if you received any child tax credit benefit amount in 2021. This means if you or your spouse’s income increase or you have fewer dependents, for example, you will have to repay the advance payments you received.
This year’s child tax credit is considered an extension of the child tax credit available to eligible parents every year. Normally, the full child tax credit amount is $2,000 per qualifying child. It’s important to take this into account if you have any qualifying income changes, as you could potentially owe almost double the amount of the credit you are used to receiving should you have a qualifying event.
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This article originally appeared on GOBankingRates.com: How the Child Tax Credit Will Affect Your 2021 Taxes
