The American Rescue Plan Act of 2021 created a unique situation to benefit families who are working to recover from the economic impact of the COVID-19 Pandemic. As with all new programs, there are lots of questions; add in the complicated nature of our tax code and the only answer you will get is, it depends.
Here are the highlights, as they have been made available to us so far:
- Advanced Child Tax Credit Payments: (Scheduled to Begin July 15th)
- Changes only in effect for the 2021 tax year
- 17-year-olds now qualify
- 5 & under the credit amount increases to $3,600 per child
- 6 – 17 credit increased to $3,000 per child
- Income limits apply: $75k Single or Married Filing Separately; $112,500 for Head of Household; & $150k for Married Couples (phase-outs apply)
- Payments based on 2019 or 2020 tax return income and dependents.
- Overpayment will have to be paid back. (NOTE: New Protection released 6/14/21)
- Automatic Opt-In; Must request opt out. (Currently no mechanism built)
Repayment Protection by the numbers:
- If you make under the following amounts:
- $60,000 if you are married filing joint or a qualifying widow or widower;
- $50,000 if you are filing as head of household; and
- $40,000 if you are a single filer or are married and filing a separate return.
Thanks for stopping by and reading. You will qualify for automatic protection from repaying any excess advanced payment. Just be prepared for your refund to be slightly different when filing in 2022.
Repayment Protection Phase-Out:
- If you make up to the following amounts:
- $120,000 if you are married filing joint or a qualifying widow or widower;
- $100,000 if you are filing as head of household; and
- $80,000 if you are a single filer or are married and filing a separate return.
You will have limited protection from repayment. Yep, now we are get murky. If you make over these amounts, you may or may not have to pay back the excess you receive.
Repayment Protection and Reduced Credit Amount:
- If you make over the following amounts:
- $150,000 if married filing a joint return or a qualifying widow or widower;
- $112,500 if filing as head of household; or
- $75,000 if you are a single filer or are married and filing a separate return.
You will have to repay any excess AND your credit will be reduced down to $2,000 per child where it will stay. The next phase out of eligibility begins at:
- $400,000 if married and filing a joint return; or
- $200,000 for all other filing statuses.
Everyone clear on the income levels?
No? Great! Moving on to mechanics. I promise, I will not do the math!
How to receive your monthly payment:
Step 1 – File your 2019 or 2020 tax return
Step 2 – Do nothing; the IRS will automatically initiate payments based on your 2019 or 2020 tax return.
Yes, numbers will be updated to 2020 return information upon processing, if necessary.
For information on reporting changes or updating your information, keep an eye on the IRS Website
- How to Opt-Out of your monthly payment:
- Step 1 – wait for the IRS to launch a tool called the Child Tax Credit Update Portal (CTC UP) sometime in June; should be found here
- Step 2 – Login when you can and follow the procedures for opting out.
Worth Noting:
Just like the stimulus payments, you will not lose the additional amount of the Child Tax Credit if you opt-out. It will be available on your 2021 tax return. And just like the stimulus payments, it will be critical for you to include Letter 6419 you will receive in January 2022 with your tax documents.
To Sum Up:
There are still a lot of unanswered questions and moving parts. Each situation will be vastly different. For answers about your specific situation, check out my new page “Just A Quick Question” for details on how we can help.
Stay tuned for more updates on As the Tax Laws Change…
Amy
