Must Know Conceptions About Advance Child Tax Credit Payments
As a parent, it's important to know the details of advance child tax credit payments. The IRS provides help in understanding these types of payments and how to be eligible. On July 15, about 60 million children's families got the first installment of the increased Child Tax Credit payments. We're here to dispel some of the most common conceptions about these payments.
1. These payments are yours to keep.
Many families have voiced worry about retaining the money, believing they'll have to repay it when they file their taxes in 2022 - but this isn't the case for the vast majority of them.
This money is an advance on what qualified families would typically claim on their 2021 tax return for the Child Tax Credit. There's no need to stress about having to pay back the money if your salary hasn't increased much from 2020 to 2021 (we're talking hundreds of thousands of dollars). It is yours to retain and use as you see fit.
2. The payments are not subject to taxation.
That's correct, you won't have to pay taxes on this money. The money is an advance of a tax credit that will apply to your 2021 return, much like the stimulus payments. It does not count as taxable income.
You'll reconcile the monthly payments you got from the IRS in 2021 with the Child Tax Credit on Form 1040 when you submit your 2021 return next year.
3. This is what determines the amount of your payment.
Eligible families can receive up to $300 per month for each kid under the age of six and up to $250 for each child between the ages of six and seventeen. That works up to $3,600 and $3,000 per child over the course of a year. The newly-advanced Child Tax Credit payments are meant to pay qualifying families half of the Child Tax Credit they are eligible for based on their tax position in 2021 in advance. Nonetheless, not every child will get the maximum amount. Here are a few things to consider when determining the quantity of your payment:
Age requirement: Once a kid turns 18, he or she is no longer regarded a dependent for tax purposes. As a result, regardless of whether you still declare your kid as a dependent on your tax return, you shouldn't expect to get a payment for your child if they are 18 or older by the end of 2021.
Income restrictions: Your monthly payment is also influenced by your income. The amount of your payment is dependent on your 2020 tax return (or 2019 if your 2020 return hasn't been filed or processed yet by the IRS). The Child Tax Credit is now completely refundable for 2021, compared to being partially refundable (up to $1,400) in prior years, according to the American Rescue Plan. However, the newly refundable extended component of the credit – worth $1,000 for children aged six and up and $1,600 for children aged five and under – is phased down based on household income.
Resolve Your Tax Bills
No taxpayer in their right mind wants to be hit with that tax bill, especially if it tends to be a struggle to pay off. The tax credit will not be enough to satisfy any tax debts individuals and families may have with the IRS.
But there is a new and improved relief program that consolidates many major relief programs into a one-size-fits-all assistance program. Any issues regarding back taxes, unfiled years, or any other tax-related problems may be solved through one program; the IRS Fresh Start Program!
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