If you have children under 18, you may have noticed a deposit from the IRS on July 15. This is the first of six-monthly installments of an advance you will receive that will total half the child tax credit amount. The other half will be paid when you file your 2021 taxes.
This has turned into a complicated issue due to the income limits to qualify and the potential to be surprised at tax filing time since half of the credit would have already been received regardless of whether you end up qualifying based on 2021 income.
It’s important to note that the advance payment is determined by the income on your 2019 or 2020 tax return. However, it gets “trued up” when you file your 2021 taxes.
There are two types of child tax credits that could potentially be part of the advance with different income thresholds.
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Regular child tax credit
This is a credit of up to $2,000 per child who is age 17 or younger. The income phase out for a married couple starts at $400,000 ($200,000 for an individual).
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Enhanced child tax credit
This is an additional credit of $1,600 per child for children under 6 or $1,000 per child for children between 6 to 17. It is only available in 2021. The enhanced credit has lower income phaseouts, which start at $150,000 for a married couple ($75,000 for an individual).
As an example, a married couple with two children under 6 who have income of $100,000 would receive $600/month for six months or $3,600 (half of the total child tax credit of $7,200).
Click here for an online calculator that can help determine your credit.
It is also possible to turn off the advance payment through the IRS website. Click here for the link to the IRS website to manage the payment.
Please consult your tax preparer to determine if it would be beneficial to stop the advance payments.
If you are a Syverson Strege client, please don’t hesitate to reach out to your planner or associate planner at 515-225-6000 if you have any questions.
