The cost of raising children of any age can be expensive: from cribs and strollers to summer camps and after school activities. With the child tax credit, families will receive funds directly depending on their income and family size. The child tax credit will be sent out in monthly payments to families who qualify.
This credit will be $300 per month ($3600/year) for children under 6, and $250 per month ($3000/year) for children over 6. The child tax credit calculator will help determine the tax credit for your family’s situation. Everyone’s tax situation is different and this is not tax advice so be sure to speak with your tax adviser if you have any questions.
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How does the child tax credit work?
The child tax credit is a credit that can be claimed when filing your annual tax return. However, this year (2021), child tax credit payments will be made monthly to 39 million families who qualify. From July 15, families will receive up to $250 a month for children 6 to 17, and up to $300 a month for children under 6 through December. This amounts to half of the total child tax credit. The rest will be taken as a lump sum payment tax deduction when your taxes are filed.
How much you receive, and when you receive payments, and whether you will have to pay back will vary by your individual situation. Here are the most common FAQs:
How much is the child tax credit monthly payments?
The child tax credit payment is $3600 for children up to six and $3000 for children 6 to 17. If you have more than one child, the appropriate child tax credit is applicable for each child. The child tax credit is also available for children born in 2021.
Child tax credit payments are income-based. The child tax credits start to phase out at income levels of $75,000 a year for individuals or $150,000 a year for couples filing jointly.
Do I have to pay back the child tax credit 2021?
Whether you have to pay back the child tax credit in 2021 will depend on your personal financial situation. For individuals making less than $40,000 a year, or couples filing jointly with less than $60,000 per year, you will not need to repay your child tax credit.
For everyone else, the remaining child tax credit to claim in 2021 will be $1800 for children under 6 and $1500 for children 6 to 17. That means that all things being equal, the remaining child tax credit at tax time will be $500 less than in 2020. For this reason, families need to plan ahead and make sure they have the savings to cover their tax burden.
Filing status will also affect whether you need to pay back the tax credit, including whether you filed as the head of household. Families who switched to higher paying jobs, sold a home, or had other income increases will need to be careful of not overspending. If their total income increases beyond the child tax credit payment thresholds, they will need to pay back the tax credit.
Will I get the new child tax credit if I already filed my taxes?
Yes, if you already filed your taxes for 2020 you will get your tax credit through child tax credit payments and a lump sum payment tax deduction on your 2021 taxes. In the case of divorced parents filing separately, who often choose to alternate years, the parent who claimed the child on their most recent tax filing will receive the child tax credit.
Are both parents eligible for child tax credit?
The child tax credit is per child, not per parent. If parents are filing jointly, they are eligible for the child tax credit for each child. In the case of divorce, the parent who has claimed the child on their 2020 taxes will receive the child tax credit.
How do non-filers receive the child tax credit?
In case you do not file taxes, the IRS released a non-filer tool to claim your child tax credit. You can use this tool to sign up for your child tax credit. You can use the child tax credit calculator to see how much you can expect to receive.
Should I opt out of the child tax credit?
For some families, it makes more sense to opt out of the child tax credit monthly payments. For higher income families who might expect a lower tax credit next year, opting out is often the simpler solution. Here are some of the pros and cons.
Advantages of opting out of monthly payments
The advantage of opting out of monthly payments is the security of knowing the exact amount you will receive at the time of filing taxes. If you can afford monthly expenses and opt out of the monthly payments, your credit will be waiting to be claimed in tax season. There is no risk of spending money that will be due later. Avoid overspending with our child tax credit calculator.
Disadvantages of opting out of monthly payments
The disadvantage of opting out of monthly payments is in funds left on the table. You could use those extra funds for childcare costs, home improvements, healthier food, educational opportunities, or any other special expenses. By opting out of monthly payments, you choose not to take advantage of government assistance which could be used to create greater opportunities for your family.
Child Tax Credits Summary
The child tax credit can provide a financial boost to help you reach financial goals, save for your child’s future, or make ends meet. Whether you choose to take the lump sum payment at tax season, or opt for monthly payments, the child tax credit is an advantage for parents to plan and reach their financial goals. The child tax credit calculator makes it easy to determine how much you can expect. Whatever your financial situation, a MoneyLion investment portfolio can help you build a financial safety net and invest in your family’s future. With a little planning, the child tax credit can be the first step to building long-term wealth.