The 2021 Child Tax Credit Advance - What Parents Need to Know
**The content in this blog was updated on June 29, 2021, to reflect the updates to the Child Tax Credit.
Attention parents who are taxpayers! (That should be all of you, ha-ha). The recent changes to the 2021 child tax credit are something you should understand. Yes, the tax credit will help struggling families. However, for families that do not need extra financial support, your action is required to opt-out. If you don’t (said in our best Liam Neeson voice), your 2022 tax return and refund may be way out of whack.
Families will start seeing these automatic monthly credit amount payments for half of the Child Tax Credit (CTC) from the IRS as soon as July 15, 2021. When you file your 2021 income tax return, you will claim the other half.
We know there are lots of questions and scratching your head moments when it comes to the CTC and opt-out so we broke down the most important things you need to know now.
Quick Facts on the CTC:
The IRS is using past tax returns to estimate those that should receive these advanced payments from this credit. Use your best discretion [or ask the experts, wink wink, our team at Blue Fox] on whether or not you should opt out. Here’s why: Based on your 2021 income, you might need to pay back the advance payments when you file your tax return.
If you rely on the child tax credit to help balance out your year-end tax bill, you could find yourself owing money at the end of the year.
Next steps to take
Check your mail. The IRS is mailing out notices to those they think should receive the Advance Child Tax Credit payments. Don’t worry if you are eligible or owed the credit, you will receive it when you file your 2021 tax return.
Opt-out. Visit this link directly [click here] to the IRS website to unenroll from receiving these tax credit payments.
Record payments received. You will need to know for your tax return next year how much you received from these advanced payments if you are receiving them. Don’t assume that the IRS will keep track of this for you. Contact your tax professional for more advice on how to proceed with the next best step for you. And as always, if you have questions, our friendly tax team is available to help at (321) 233-3311 and hello@yourbluefox.com.
What is the 2021 Child Tax Credit?
Under the new American Rescue Plan, the child tax credit amounts have increased from $2,000 per child to $3,000 per every child between the ages of 6 and 17, and $3,600 for every child under the age of 6. If you have a dependent who is 18 years old, you can receive a $500 payment for them [this includes dependents ages 19 to 24 who are currently full-time college students].
Who gets it?
If you normally receive the child tax credit on your 1040, you'll be automatically opted into an advanced payment of the credit for quarterly payments. Every taxpayer with a child on their 2019/2020 taxes, will start getting tax money. Once the credit amount is determined, 50 percent of the amount will be paid in advance payments from July to December 2021. The remaining 50 percent will be claimed as a credit on the taxpayer’s 2021 tax return.
2021 Child Tax Credit Calculator
Are you wondering how this new tax credit will affect you? Use this handy tax credit calculator to find out. Note: you will need information from your 2019 tax return.
Need more help?
Our team at Blue Fox is up to speed on the latest tax law changes, and there are many. As you can imagine, tax preparation has never been more complex or intricate than it is this year.
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