Get To Know The New Child Tax Credit

A woman in her kitchen paying a bill by phone while holding her baby.

One of the biggest tax changes that was made this past year is the adoption of a new child tax credit that can be claimed in monthly amounts or at an annual level. This tax credit comes after a flurry of new initiatives aimed at helping low to middle-class households bounce back after the financial difficulties that came with 2020. There are quite a few caveats and things that you should know about this tax credit before you make any serious decisions regarding the money you could get from this new credit. If you have any questions about this update or any other tax information, contact the expert team here at Inside Out Tax Resolution Services today. Here are a few tips to help you navigate this new update.

Do You Qualify?

Not everyone will qualify for this tax credit, and everything from income to the age of your children can affect how much you can receive or even if you will get a payment at all. The basic idea of the tax credit is that individuals who have children who are five and under will receive $3,600 per child, individuals with children between 5-17 will receive $3,000 per child, and individuals with children between 18-24 who are still listed as dependents will receive $500 per child. These payments are also based on your income and will only be paid in full for individuals with an AGI of $75,000 for single filers, $112,500 for head of household filers, or $150,000 for joint filers. If your AGI is higher than these numbers, you can expect to receive $50 less for each $1,000 in income above that amount.

For individuals who already paid taxes for 2020, you will automatically be enrolled to receive these payments and credits. For non-filers, the IRS has created a Non-Filer Sign-Up Tool that can be used to submit an electronic form informing the IRS of how many children that you have that would qualify for this tax credit. Please note that this tool will work much better on a computer, will require an e-mail address, and is only available in English.

What Does The Payment Schedule Look Like?

There are two main ways that you will receive these payments. The first way, if you qualify for this tax credit, the IRS will begin sending out monthly payments on July 15th and payments will continue on a monthly basis, with the remainder of your owed credit being paid out when you file for 2021. Alternatively, if you would prefer to receive this money in a lump sum, you can defer these payments and receive the totality of this payment upon filing your 2021 taxes. Make sure that when you are reviewing your eligibility for these payments that you take the time to see if you could also qualify for up to $16,000 in childcare expense breaks.

If you would like to learn more about these updates or have a tax problem you need help with, contact Inside Out Tax today.