What's Up With the Child Tax Credit?
Its like hair in the 80s: It got a lot bigger. The $1.9 trillion stimulus package passed in March hiked the child tax credits cap by $1,600, and parents can reap the benefits starting today. The details:  The max credit shoots up to $3,600/child under 6 and $3,000/child between ages 6 and 17, compared to last years $2,000 max per child under 17. Parents will get half of the total credit in monthly installments through December. Theyll get the other half when they file their 2021 taxes next year. The credit is now fully refundable, so low-income families who dont owe federal taxes can feel the credits full effect for the first time in recent history. Big picture: The upgraded child tax credit is part of the federal governments larger effort to keep the US economy hustling and bustling. And it is...with a heaping side of inflation. You do if you have at least one qualifying kida child you claim as a dependent whos lived with you for more than half the yearand your main home for more than half of the year is in one of the 50 states or DC. Theres also an income limit, but more on that in a bit. The IRS sent letters in June to the 36 million families it thinks are eligible for payments. Maybe frame yoursit might be the warmest interaction youll ever have with the IRS. Taxpayers who claimed the child tax credit on their 2020 returnsor 2019 for those who havent yet filed for 2020should be all set to receive monthly payments. Parents who arent required to file taxes can sign up for payments on the non-filer portal. If youve gained custody of a child or are having a baby in 2021, youll eventually be able to let the IRS know about it, but not yet. One day in late summer, it says. Your monthly payment depends on how many kids you have, their ages, and your adjusted gross income (AGI) in 2020 (or 2019 if you havent filed 2020). Thats line 11 on your 2020 Form 1040. The monthly max payment is $300 per child under 6 and $250 per child between ages 6 and 17. Theres no limit on the number of kids parents can claim. Youll get the max payment when your AGI is below...  $75,000 and youre single  $150,000 and youre married filing jointly  $112,500 and youre a head of household  The payment ticks down as income rises above the threshold. Youll get something when your AGI is below:  $240,000 and youre single  $440,000 and youre married filing jointly  $240,000 and youre a head of household  You can calculate exactly how much youll get here. You can, and some of you should. Unlike the stimulus checks during the pandemic, theres a chance youll need to repay some of the advance credit if your circumstances in 2021 look different from last year. The IRS is looking back at your most recent return to calculate your monthly payment, but the actual tax credit amount is based on your 2021 situation. Youll settle up when you file your 2021 taxes next year. Say you and your spouse have a 5-year-old and reported $125,000 in AGI on your joint 2020 return. Youre slated to get the full $300 per month until December. But...youre on track to earn $200,000 in 2021. Your higher income and your kid turning 6 lower your CTC amount. Youd repay a portion of those too-high monthly payments when you file your 2021 taxes. In late summer, the IRS portal will let you update your income, number of dependents, and marital status to better reflect your 2021 situation. Until then, chat up a tax pro if:  Your income increased significantly in 2021  Youre concerned about a higher-than-usual tax bill next year  You take turns with someone in claiming the child tax credit  Your child turns 6 or 18 in 2021  Youre too late to unenroll from the first payment, but you can discontinue the rest here.