Expanded Child Tax Credit
No one said having children was easy inexpensive... In fact, the USDA puts the cost of raising a child from birth to age 18 at $233,610 for a middle-income family or around $12,980 per year. To help offset some of those costs for parents, the Child Tax Credit (CTC) was created in 1997 and has expanded and changed numerous times over the past 24 years. The most recent change was in March with the American Rescue Plan.
The expansion of the CTC created major changes for the program in 2021. The effort expands the annual tax benefit from a $2,000 credit to up to $3,600 (if a child is under the age of 6 by the end of 2021) or $3,000 per child (if the child is between age 6 and 17 by the end of 2021). The second major change is that the IRS will begin paying this credit on a monthly basis, starting July 15th, rather than annually when claimed on your taxes. It is estimated that 36 million families will receive monthly benefits July - December and claim the first half of the year (January - June) on their 2021 tax return. This expanded tax credit is only available for one year.
Along with having children under the age of 17, families will only qualify if their income falls under certain thresholds. Those amounts are calculated using Modified Adjusted Gross income which allows some deductions from your gross income such as retirement and HSA contributions, health insurance, student loan interest, self-employment tax, etc… Below are the limits and phase-out income amounts:
- $75,000 or less for single taxpayers (fully phased out at $107,000)
- $150,000 or less for married filing jointly (fully phased out at $182,000)
36 million families received letters in June stating they are eligible to receive the enhanced tax credit and advanced monthly payment. If you are a household that did receive a letter and would like to collect this monthly advance in tax credit, there is no action that needs to be taken. The first monthly tax credit payment should arrive in your bank account on or around July 15th.
The IRS also stated if a family who did receive a letter has income in 2021 over the threshold amount, you will need to pay back the extended credit when you file your taxes. To prevent that from happening or if you would not like to receive your benefit on a monthly basis, the IRS has created a website to unenroll from these monthly payments. The IRS’s website to unenroll is https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021. If unenrolled, you are still eligible to benefit from the full CTC, but it will just be claimed on your 2021 taxes rather than advanced monthly payments.
Please reach out to me with any questions or to discuss further.
Evan Werckenthien, CFP
600 E. Carmel Drive Suite 130
Carmel IN 46032
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