Some of you may have heard about the Advance Child Tax Credit that will be coming your way starting in July 2021. This is part of the American Rescue Plan Act (ARPA). Here is the highlighted information that you need to know:
The credit amount may increase up to $3000 for children aged 6-17, and $3600 for children under 6 years old. (In past years it was $2000 for children 17 and under.)
The credit will include children who turn 17 in 2021.
Taxpayers may receive part of their child tax credit BEFORE filing their 2021 tax return.
While this may sound like a great deal, we would like to remind you to be aware of the tax obligation that you will have for 2021. If you are a taxpayer who typically receives a refund due to the child tax credits on your return, you will need to watch this closely. Here is an example of a situation that may help explain it better:
Fred and Sue have 3 children under the age of 6. They will be receiving $10,800 in 2021 for the Child Tax Credit. Fred does not have enough withheld from his paychecks to meet the tax obligation for the salary that he makes. Therefore in the past tax years, the child tax credit has helped make up the difference, and they are used to getting a refund. Now in July Fred and Sue receive their child tax credit BEFORE they file their 2021 taxes. They use that money and do not save it. Now they are filing their 2021 taxes in March 2022, and realize that they owe money, because the child tax credit was already given to them starting in July 2021 and not given on their taxes. Fred and Sue now need to come up with money to pay the IRS and State of MN because Fred did not have enough taxes withheld from his pay checks.
Here is the information from the IRS about this Advance Child Tax Credit Payments in 2021 | Internal Revenue Service (irs.gov)
Have no fear, they will be offering a way to opt out of receiving this in July 2021 and just keeping it on your 2021 taxes as a credit. As soon as we have that information we will be posting that on our website.
As always, please contact our office with any questions. We are here to help you all year long!