ROCHESTER, N.Y. (WROC) — Changes to the child tax credit will give many families unexpected cash infusions starting this July. CPA Michelle Staebell discussed those changes and what they might mean for parents in New York.
“There is a lot that’s new,” she said. “A temporary change to the child tax credit means that it was increased from $2,000 to a standard of $3,000 for kids age 6-to-18. So that’s new too because it used to age out at 17. And it’s even higher—$3,600 credit—for kids from birth until they turn age six. So the amount has definitely increased just for 2021 which should help a lot of families with small children or any children in high school still.”
Staebell emphasized that pending Congressional action, the changes are just for 2021.
“So the credit is technically part of the 2021 tax return but written into the American Rescue Plan, which was passed by Congress and signed into law by the President in March, with advanced payments of this credit starting in July. So monthly payments from July until December of 2021. Half of the credit that taxpayers are eligible for may be advanced directly to taxpayers in the form of checks or direct deposits into their bank account. So somebody who might have one child at home that would get a $3,600 credit—if the child is under six—would get $300 advanced into their bank account each month starting in July until December and then the credit would be reconciled on their 2021 income tax return.”
The child tax credit phases out with two parents earning over $150,000 and single parents earning over $112,000 or $75,000 depending on their filing status. Staebell explained why some families might want to opt-out of the early payments.
“This credit gets really tricky because the IRS is going to use whatever information they have on hand. So if a taxpayer hasn’t filed 2020’s tax return yet, because they could extend until October to file it, the IRS will use 2019 information to automatically send out these advanced payments. Well, as we know, taxpayers’ situations change pretty quickly sometimes. Their income could increase, which means they wouldn’t be eligible for the credit on the 2021 income tax return, dependents can change. If taxpayers are getting divorced or separated then there might be a change of who is claiming which dependent on which tax return. So taxpayers are supposed to have the option to go online on a portal and update the IRS to their situation so that the advanced payments wouldn’t be advanced in July because right now it’s set up to automatically send out those payments. A taxpayer would actually have to opt-out if they didn’t want the advanced payments to be sent.”
Staebell said parents who want to learn more about the Advanced Child Tax Credit should consult a trusted CPA.