To follow up on my post from June 22, you’re likely aware that the American Rescue Plan Act enacted March, 2021 directs the IRS to automatically pay 50% of the credit in monthly payments beginning July 15. This is for 2021 ONLY. A new online portal is available for taxpayers to check eligibility and opt out of the monthly advance payments. Go to https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021. See below for an example of tax impact.
As an overview, assuming taxpayers are qualified maximum credit amounts are:
$3,000 for age 5 and under – up to $300 x 6 months received in monthly payments.
$3,000 for ages six to 16 - up to $250 x 6 months received in monthly payments
If you don’t already have an IRS account the enrollment process is pretty rigorous. Be prepared to upload a copy of your driver’s license (front and back) or passport – and as part of the verification process, a ‘facial recognition scan’ is required. It can be done via selfie or ‘live’ computer generated picture. Note – while this is formative, my understanding is in the case of married filing jointly taxpayers, both spouses will need to go through the enrollment process individually.
I would encourage you to weigh the pro’s and con’s, take a look at the example below and feel free to reach out with questions/concerns.
1.) John and Jane Taxpayer have two children, ages 7 and 12. In 2020 their child credit was $2,000 x 2 = $4,000. Let’s say their total refund was $400. Let’s also assume 2021 taxable income, withholdings, etc., are exactly identical to 2020 with the only difference being the child credit. After receiving the advance payment, their ‘available tax credit would be shown as follows:
a. 3,000 x 2 = $6,000
b. Less: Advance pmts (3,000) ($250 x 2 x 6 months)
c. Available credit – 2021 tax $3,000
d. * John and Jane would owe $600 in tax at April 15, 2022. They had $4,000 ‘available’ to offset tax in 2020 from the child credit and only $3,000 after factoring in the advance payments in 2021.
Must confess I have a bit of a headache now. But let me take on the headaches so you don't have to - feel free to reach out!
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