If you’re somebody who regularly checks their bank account statements, then you will be seeing direct child tax credit payments from the IRS starting this week. Yes, that’s right the government decided to expand the child tax credit program for all eligible taxpayers back in March. How does this effect the pockets of regular families, listen up this is where you can really cash in! The government has mandated that if you have a child below the age of six you can qualify up to $3,600 per child and if they between 6 or 17 then you can get up to $3,000. Essentially you could be receiving up to $900 dollars per month for the rest of the year! The good news doesn’t stop there, this program also includes prepayments for your 2021 child tax credit. Let’s say you are a single mom or single dad with a 2-3 kids, struggling to pay rent or your bills, then this is a program specifically designed to help you. For simplification purposes, let’s say you have 3 kids (6, 7 and 15) – you could end up getting $4,500 dollars for the rest of the year spread out over 6 months. Combined with the pre-payment for the 2021 child tax credits, you could see up to $900 dollars being deposited in your account for the rest of this year!
Nevertheless, there are some strings attached, these tax credits are a dollar for dollar offset – so taxpayers who get prepayments for the 2021 credit, may end up owing the IRS next year during tax time. At the FitBiz we recommend that you opt out of the prepayments for the 2021 child tax credit (for reference about one million taxpayers have already done so). Again, as your strategic accountant, I do not want you to expect any un-welcome news or surprises during tax time next year. You may think the government is being truly altruistic by providing these tax credits, but they are basing this information on your 2019- or 2020-income levels.
If for instance your income levels were to change or fluctuate then you could end up getting a lower tax refund or owing the IRS a tax bill next year. My best recommendation is to make an appointment with your CPA and discuss the details regarding the new child tax credit, if your CPA isn’t responsive then get in touch with your strategic team at the FitBiz. You must be wondering; how do income levels effect the amount of child tax credit? Great question, here’s a simple breakdown per the IRS:
- Single filers making $75,000 or above and married filing jointly filers making $150,000 will see a $50 dollar reduction in their credit for ever $1,000 in additional income.
For most married couples the child tax credit phaseouts being if you make $400,000 or above. Again, my best advice is to contact your strategic CPA’s at the FitBiz, and we can provide a personalized recommendation for you. By the same token, let’s say that your ex-spouse claimed your child and you aren’t eligible for the tax credit – in this case, you will ow the IRS money unless you can show that your income is below $40,000. If the IRS discovers that you received payments for which you weren’t eligible for then you could be facing a hefty bill next year. Let’s say that you have a married filing jointly income of $250,000 and have two kids, then you can still receive pre-payments for half of $4,000 permanent tax credit in the form of $333/month for the rest of this year.
Whew! If you’re still confused about the complex issues surrounding the next child tax credit, then don’t be afraid to reach out to our team of tax experts. Again, if you would like to opt out you can simply go to the IRS child tax credit portal and follow instructions. I will drop a link below so that you can manage/stop your pre-payments. Above all I want to emphasize that Congress created this new child tax credit program to help struggling families. You need a trusted advisor who can guide you through this process and provide the best possible personalized recommendations.