The world has been through a lot over this past year and a half, thanks to the COVID-19 pandemic. The government moved to help the economy with PPP loans for businesses and the American Rescue Plan COVID relief bill. Even with that support and stimulus payments, families have been hit hard. According to Statista, 70% of Americans have less than $1,000 saved in case of emergency.
There has been a lot in the news lately about the Advance Child Tax Credit. It’s part of the American Family Act which passed in March 2021. It was created to help alleviate financial insecurities faced by families with children, especially those at the poverty level.
Tax credits for children are not a new idea. According to the current tax code, eligible parents are already receiving a $2,000 credit for every dependent child as part of their annual tax refund. The difference is that now the credit amount per child has increased and families can receive up to half of their total credit before the year’s end in monthly installments.
How the money will reach you
The advance tax credit is scheduled to hit the bank accounts of families as early as July 15. Any person who filed a 2020 tax return, and claimed the Child Tax Credit on that 2020 return, is eligible for this new Advance Child Tax Credit for 2021.
The IRS will use your 2020 tax return filings to see if you qualify, and automatically enroll you for these monthly payments. If your tax return is paid via a direct deposit, there’s a good chance your Advance Child Tax Credit has already hit your account — or it will very soon. If you file by more traditional means, such as mailing in your tax returns, you will more than likely receive your Advance Child Tax Credit checks by mail.
All in all, these monthly payments will represent one-half of the total credit amount that a family will be entitled to receive. The second half of this credit will be refunded with the filing of their 2021 tax return.
How much money?
The new tax credit for children five and under is now $3,600 which will break down into monthly payments of $300. The tax credit for children 6-17 is now $3,000 per year which breaks down to payments of $250 per month.
Qualifications to access the money
Eligibility is determined by the filer’s adjusted gross income (AGI). Those eligible are singles whose AGI is $75,000 or less, heads of household with an AGI of $112,500 or less or married couples filing a joint return with an AGI of $150,000 or less.
Beware of scams
It seems wherever there is help, hurt is not far behind. The IRS warns that any other source that might be claiming to distribute funds other than the Internal Revenue Service is a scam. Only those who have filed a tax return or who have signed up at the non-filer sign-up tool can receive funds. There are no application fees to receive these funds.
Who might consider opting out?
There is an option to decline these monthly payments if they are not advantageous to your specific tax situation. For example, if you feel you will be paying taxes at the end of the year instead of getting a refund, you may decide not to receive the advance credits.
Or, if your income changes and you feel you will exceed the cut-off limits, you may have to pay back the advances. If so, you may wish to opt-out of the program. It might be too late for the July payment, but families can opt out of the advance payments at the portal created by the IRS.
Divorce can also complicate the Advance Child Tax Credit. The parent with custody of the child/children would typically be the parent who receives the credit, but alternating custody can create issues. In any case, only one parent can claim the credit for each child each year. It cannot be split up during the same calendar year. Most often, the parent who has custody of the child most of the time receives the credit. In some cases, parents may choose to alternate the credit each year.
Always here to help
Borland Benefield wants you, and everyone else, to receive all of the money that you can in order to keep your family secure in this trying time. If you feel as though you need help, or if you run into trouble with your payments, feel free to reach out to us or follow the Advance Child Tax Credit portal, established by the IRS.