New tax policies can seem overwhelming or confusing. Since the new child tax credit is a significant change, parents must educate themselves on how to take advantage of this new policy. Understanding the new child tax credit in 2021 can make a significant impact on your income this year. Here’s what to know about the 2021 child tax credit.
What it is
A tax credit is an amount subtracted from the total income taxes you must pay to the IRS. As of July 15, parents may be eligible to receive an advance tax credit for each of their children. This will be in the form of monthly payments. In other words, parents receive part of the tax credit they would normally get at the end of the tax year in advance. Parents receive half of the credit in monthly installments and the other half when taxes are filed in April.
How much it is
Parents who have children under age six qualify for up to $3,600 per child. This works out to $300 each month. Parents who have children aged six to 17 are eligible for up to $3,000 per child, which works out to $250 per month.
How it’s different than the previous child tax credit
Child tax credits were already in place before this law was enacted. However, there are two main differences with this new law. First, the payments are made in advance. Parents don’t have to wait until they file their taxes to receive the credit. They can receive installments for half of the credit throughout the rest of the year. Secondly, the tax credit amount is now higher. Previously, the credit was only $2,000 for children of all ages.
Who is eligible?
Parents who have at least one child 18 years old or younger and who meet the income requirements may receive this credit. Parents must earn less than $75,000 for individual filing and less than $150,000 for joint filing. Parents who make more than this may still qualify for the credit at a reduced amount.
How to receive the credit
One of the most important parts of understanding the new child tax credit in 2021 is how to receive the funds. These payments can be made via check or direct deposit. Most parents do not have to sign up or apply to receive the credit. If you filed your taxes in 2020 and are eligible for the credit, you will automatically receive payment.
If you did not file in 2020 or your eligibility status has changed, you should contact the IRS to make sure you receive your credit. Additionally, to file for the payments correctly, parents must track the payments received and claim them on their income taxes when they file for the year. If you aren’t sure whether you need to contact the IRS or if you qualify, contact a local tax accountant who can assist you and help you with further understanding the new child tax credit in 2021.
We’re here to help
Kedean’s Generation has been serving the local area with tax preparation, accounting and more for over 30 years. We pride ourselves on the attention to detail and personalized service we deliver to each client. Contact us today at 201-863-5584.
Categorised in: Tax Preparation