Five facts about the new withholding tax credit for children

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We are a few weeks away from the arrival of the advance payments of the Child Tax Credit (CTC) (July 15). If your family is potentially eligible for payments, you may have already received a letter from the IRS regarding the CTC. To guide you, here are the answers to five important questions to ask yourself.

1. How does the CTC work?

Child tax credit payments were part of the American Rescue Plan Act of 2021, which was enacted in March of this year. Not only did the new law increase the CTC (from $ 2,000 to $ 3,000 for each child between the ages of 6 and 17, and to $ 3,600 for each child under the age of 6), it put a plan in place. About half of the CTC’s distribution in the form of payments to families have split in the last six months of this year. The changes to the CBA only affect tax year 2021.

The payments are considered to be an advance on the CTC that you would claim for 2021. Therefore, on your tax return that you file in 2022 for the 2021 tax year, you will not get all of your CTC, since you received half of it in advance. .

You can opt out of receiving payments if you think the full deduction might be more attractive when filing income tax next year than receiving payments now (you’ll want to check with your tax advisor before making this decision). You can find more information on how to unsubscribe below.

The information for payment factoring will be based on the taxpayer’s 2020 or 2019 tax return. Payments will be up to $ 300 per month for each eligible child under age 6 (up to $ 1,800 in total) and up to $ 250 per month for each eligible child aged 6 to 17 (up to $ 1,500 in total).

2. Who is eligible?

Some of the key details for an eligible child are:

  • Not 18 years old before January 1, 2022.
  • Is the eligible son, daughter, stepson, foster child, brother, sister, stepbrother, stepsister, stepbrother, stepsister or a descendant of one of them (grandchild, niece or nephew, for example).
  • Does not provide more than half of its own support in 2021.
  • Lives with the taxpayer for more than half of the 2021 tax year. There are exceptions.
  • Is correctly claimed as a dependent of the taxpayer.

3. Are there any income limits?

Just like any other stimulus payments you may have received in the past year or more, the amount of CTC you are entitled to changes when you exceed certain thresholds.

According to the IRS, if your modified adjusted gross income (MAGI) exceeds the following limits, the CTC begins to be reduced to $ 2,000 per child:

  • $ 150,000 if you are married and are filing jointly (or if you are filing as an eligible widow or widower)
  • $ 112,500 if you declare as head of household
  • $ 75,000 if you are a single tax filer (or married and file a separate return)

The CLC is reduced by $ 50 for every $ 1,000 that your MAGI exceeds the income threshold.

In addition, the child tax credit will be reduced below $ 2,000 per child if your MAGI in 2021 exceeds:

  • $ 400,000 if married and filing a joint return
  • $ 200,000 for other filing statuses

Again, the CTC is reduced by $ 50 for every $ 1,000 that your MAGI exceeds the income threshold.

4. How can I apply if I am not filling out an income tax return?

Recently, the IRS and the Treasury Department announced an update to the Non-Filer Registration Tool, for families who are eligible for CTC payments but who do not normally file income tax returns. By providing a few details (full name, current mailing address, date of birth, email address, social security numbers for adults and their dependents, and bank account number, if applicable), they can enroll in payments. Once it is determined that a family is eligible for CTC payments, nothing else needs to be done to receive them. The tool, which can also be used by those who do not file tax returns but want their 2020 Recovery Rebate Credit and Third Economic Impact Payment, is available at IRS.gov.

There are also other new IRS tools for the CTC. The Early Child Tax Credit Eligibility Wizard provides a series of questions for families to answer so they can determine if they qualify for the early credit.

The Child Tax Credit Update Portal allows families to check their eligibility for payments. It can also help them opt out of receiving the monthly payments, if they choose, so they can instead claim the full credit next year when they file their tax return. Future versions of this tool, expected to arrive later this summer and fall, will allow people to view their payment history and adjust their mailing address, among other features. A Spanish version is also planned.

5. Can I get help filing a claim with the CTC?

The IRS has announced that it is partnering with nonprofits, churches and other community groups in 12 cities to help eligible families obtain CTC by filing a 2020 tax return or by filing. registering using the non-filer registration tool.

Outreach events will be held June 25-26 and July 9-10 in Atlanta, Detroit, Houston, Los Angeles, Las Vegas, Miami, Milwaukee, New York, Philadelphia, Phoenix, St. Louis and Washington, DC More d information can be found here.

Questions?

Email me with IRS related questions at [email protected]. Include your city and state, and mention that you are a forbes.com reader.


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