Child Tax Credit Payments May Mean a Big Spring Tax Surprise for Some Parents
So if any of these changes change, parents could end up receiving much lower refunds than they expected – or even owing taxes – when they file their 2021 returns next spring. . This is when they have to reconcile the monthly payments they have already received with the actual amount of the child tax credit to which they are entitled.
Parents will also be able to update their income, number of dependents and marital status through the portal later this summer. The IRS should then adjust the subsequent monthly payments.
The credit is based on the parents’ adjusted gross income, the number of children they have and the age of those children.
The full enhanced credit will be available to heads of households earning $ 112,500 and joint filers earning up to $ 150,000 per year, after which it will begin to disappear.
For many families, the amount then tops out at $ 2,000 per child and begins to wane for single parents earning over $ 200,000 or for married couples with incomes over $ 400,000.
More low-income parents will also become eligible for the child tax credit because the relief makes it fully refundable.
Eligible households can receive up to $ 3,600 for each child under age 6 and up to $ 3,000 for each age 6 to 17 for 2021.
Parents will receive half of their credit – up to $ 300 per month for each younger child and up to $ 250 for each older child – on or around the 15th of each month until the rest of the year.
Earn more in 2021
Many families could earn more this year than last year. The coronavirus pandemic brought down the economy in 2020, costing many people their jobs or reducing their wages. But this year, things are looking up as the country struggles to get back to normal.
“You could have had a mediocre 2020, like millions of Americans did, but then in 2021 – especially with the rest of 2021 to come – with the economy accelerating, you could go into a situation. higher income and really have a surprise at tax time, ”said Mark Steber, director of tax information at Jackson Hewitt Tax Service.
Take the example of a married couple with two children aged 4 and 10. If their adjusted gross income is $ 140,000 for 2021, they are eligible for the full enhanced child tax credit of $ 6,600. They will receive prepayments of $ 550 per month (a total of $ 3,300 in 2021) and the remaining $ 3,300 when they file their taxes, Steber said.
But if parents get higher paying jobs or bonuses this year that increase their income to $ 200,000, they are only entitled to a $ 4,000 credit. If they get $ 550 a month this year, they’ll only get a credit of $ 700 on their 2021 tax return, he said.
Divorced couples with shared custody
Some divorced couples with shared custody change and claim their children on their tax returns every year. So that means the parent who included the children in their 2020 return might not do so for 2021, said Trenda Hackett, editor at Thomson Reuters Tax and Accounting and former IRS tax officer.
If that parent receives the monthly installments this year but doesn’t claim the children, they’ll need to reconcile that overpayment at tax time next year.
Other parents may not need the funds on a monthly basis and would prefer to receive large refunds so they can make large purchases next year. These families may also want to opt out, Hackett said.
“If you’re not that saver, let the IRS be your savings account,” she said. “I say this often.”