The Advance Child Tax Credit would cause some taxpayers to owe taxes when they file their tax return for tax year 2021, unless taxpayers who are employees adjust their tax withholding and self-employed taxpayers pay quarterly estimated tax or pay more in quarterly estimated tax. Taxpayers could opt out of receiving the Advance Child Tax Credit.
The American Rescue Plan Act enacted in March 2021 created the expanded and newly-advanceable Child Tax Credit. In general, the Internal Revenue Service will calculate the payment based on the 2020 tax return of a family. This includes those families who use the Non-filer Sign-up Tool. When the 2020 tax return is not available because it has not yet been filed or is still being processed, the Internal Revenue Service “will instead determine the initial payment amounts using the 2019 return or the information entered using the Non-filers tool that was available in 2020”.
The credit increased from $2,000 per child in 2020 to $3,600 for each child under age 6. For each child ages 6 to 16, it’s increased from $2,000 to $3,000 The payment will be up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 through 17.
The Advance Child Tax Credit payments dates are July 15, August 13, September 15, October 15, November 15, and December 15.
Generally, a taxpayer may claim a child tax credit for a qualifying child under the age of 17 who is a dependent on his or her tax return. Taxpayers may also claim a partial child tax credit for dependents who are over the age of 16 and dependents who do not have the required social security number. The child tax credit (CTC) for each child for 2020 tax year is $2,000.00.
For tax years before 2018 and after 2025, the credit is $1,000 for each qualifying child. The new credit called Other Dependent Credit (ODC) in the amount of $500.00 is allowed for each qualifying child and relative not qualified for the child tax credit. To qualify for the child tax credit and the other dependent credit, the dependent must be a national, a US citizen, or a resident alien. The child tax credit is reduced or phased out if the taxpayer’s modified adjusted gross income (MAGI) exceeds a certain amount based on taxpayers filing status, $400,000 for married filing jointly and $200,000 for all other filers. Some taxpayers are allowed the Refundable Additional Child Tax Credit, also referred to ACTC. The maximum amount of the child tax credit per qualifying child that could be refunded even when the taxpayer owes no tax is $1,400.
Taxpayers who fraudulently or recklessly claim the child tax credit and other dependent credit are temporarily prohibited from claiming the credit in future years and may only claim it in future years by completing and submitting Form 8862. A paid tax return preparer is subject to penalty for failing to comply with due diligence requirements.
For further reading:
· Internal Revenue Code (sec. 24, 152, 6402); Rev. Proc. 2018-57.
· H.R. 1319- American Rescue Plan Act of 2021.
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