Beginning July 15, the IRS will begin making monthly payments to families eligible for the expanded child tax credit that was passed as part of the COVID-19 relief bill, the American Rescue Plan. The bill enacted a temporary expansion of the child tax credit in the following ways:
• Expands eligibility to include qualifying children who turn seventeen in 2021.
• Increases the tax credit to $3,600 per qualifying child who is age five and under at the end of 2021 and to $3,000 per qualifying child who is age six through seventeen at the end of 2021.
• Makes the tax credit fully refundable for most taxpayers
• Allows many taxpayers to receive half of the estimated 2021 credit in advance through monthly payments beginning on July 15, 2021
To qualify, parents must have filed a 2019 or 2020 tax return and claimed the child tax credit or given the IRS their information using the Non-Filer Sign-Up Tool; have a main home in the U.S. for more than half the year; and have a qualifying child who is under age 18 at the end of 2021 who has a valid Social Security number.
The maximum tax credit is available to:
• Married couples who file jointly and report $150,000 or less in adjusted gross income (AGI);
• Single filers who report $75,000 or less in AGI; and to
• Heads of households who report $112,500 or less in AGI.
The expanded portion of the tax credit phases out for couples filing jointly who report more than $400,000 in AGI and for single filers and heads of households who report more than $200,000 in AGI.
For parents who qualify, advance payments representing one half of the 2021 estimated child tax credit will be sent to families beginning July 15th and will continue through December. The remaining tax credit will be received when families file their 2021 tax return. Receiving part of the refund in advance payments will result in a lower refund or an increase in the amount due when families file their 2021 tax return as compared to their 2020 tax return. This is because families are receiving part of the refund early.
These advance payments may present complications to families who are undergoing a divorce or who are already divorced in determining who should receive the tax credit. Lardiere McNair DiNicola & Stonebrook, Ltd. can help clients resolve any issues and formulate an acceptable agreement between the parties.
Families have options for resolving the potential conflict. The advance payments will be sent to the parent who claimed a child as a dependent for 2020. Therefore, parents who share custody and alternate yearly who claims the child tax credit may wish to opt out of the advance payments to ensure the full 2021 payment is received by the appropriate parent.
Parents may opt out of the advance payments by visiting the IRS’ Child Tax Credit Update Portal where they can verify their eligibility, unenroll in the advance payments, and elect to receive the entire lump sum payment when they file their 2021 return.
The IRS has also set up a portal for parents with children who are eligible for the tax credit, but do not normally file a federal income tax return. Non-filers can sign up for the advance monthly payments by visiting the Non-Filer Sign-Up Tool. Parents can determine if they qualify for the advance payments at the Child Tax Credit Eligibility Assistant.
The skilled domestic lawyers at our firm are ready to help and answer any questions you may have about The Expanded Child Tax Credit and The American Rescue Plan. You have to act fast if you want to ‘opt out’. If you would like to set up a consultation, please call 614-534-1355.
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