Child Tax Credits in 2021

Child Tax Credits in 2021

Millions of families in the U.S. have received 5 payments of $250-$300 per child over the past year, and on December 15th are expecting to receive their final payment. Will this be the last payment they receive? How will these advance payments affect their taxes in 2021? What do you need to know about the 2021 Child Tax Credits?

What is the Child Tax Credit?

For years, parents with children under the age of 17 have been able to deduct up to $2,000 per child from their annual taxes. The final amount they received would depend on their income and the amount of taxes owed. Until recently, when lawmakers put in place the ability for parents to deduct anywhere from $3,000 to $3,600 per child. Income is taken into consideration, so families with high incomes won't receive as much or possibly any credit.

This new federal program allows eligible families to receive half of their total Child Tax Credit amount (which would normally be received when they file their 2021 taxes) in advance monthly payments. These payments were sent automatically to eligible families. 

How Long Will the Advance Payments Last?

At this point, the last payment is expected December 15th, unless Congress can affect that soon. The Build Back Better Act includes a one-year extension of such payments, which would be set to resume on January 15th. But a decision would need to be settled by December 28th in order for payments to resume seamlessly.

Families have been able to count on this money for rent, groceries, and various other expenses. These payments strongly affect impoverished families, as they've removed the minimum income amount and the monthly payments don't count as income. This decision has a large impact on them, so the fact that it's up in the air is certainly unsettling. 

How is the Child Tax Credit Different in 2021?

This credit is not a loan, it's an advance. So it doesn't count towards your income & it's not taxable. Being that it's 50% of the Child Tax Credits families would normally receive when filing their return, families will receive the other 50% when they file their 2021 taxes. 

How to Handle the 2021 Child Tax Credits on Your Tax Return

In January 2022, affected families will receive a letter from the IRS showing the total amount of advance payments they received in 2021. When you file your 2021 tax return, you'll need to compare the total amount of advance Child Tax Credit payments you received in 2021 with the amount of Child Tax Credit you can claim in total on your return. For many families, the amount of credit you are eligible to claim will be higher than the amount you received. They can then claim that amount on their 2021 tax return. For some families, the IRS may have sent you more in advance payments than you are eligible to claim on your tax return. If this is the case, you may need to pay back the difference.

Filing Your Tax Return in 2021

When considering how to file your tax return, you’re presented with methods such as online programs, pen and paper, large accounting organizations, and more. But there are pros and cons to each. Going with the cheapest tax filing option does not mean you’re getting the same service as a small CPA firm with a personal touch. Haro CPA is a full-service accounting practice with two locations in California that offer individual tax return services and business consulting. A set of well-structured, meaningful records is the basis for a successful financial situation. We provide accounting services for individuals in California and all 50 states. Our knowledgeable and pleasant staff can help you with the setup of your finances as well as day-to-day tax activities.

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