With Child Tax Credit due to start soon, many parents are wondering if they should opt out of monthly checks in favor of a lump-sum payment.
(CBS Philadelphia) — On July 15, most parents will start receiving advance Child Tax Credit payments of up to $300 per child. The monthly payments will last through the end of 2021. The amount of each parent’s total payment depends on their annual income, the number of children and the ages of those children. And, in total, they may add up to more than any of the first three stimulus checks. What if a parent wants to opt out of these advance payments in favor of a one-time payment? The updated Child Tax Credit will be based on parents’ modified adjusted gross income (AGI), as reflected on their 2020 tax filing. (AGI is the sum of one’s wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.) The amount phases out at a rate of $50 for every $1,000 of annual income beyond $75,000 for an individual and beyond $150,000 for a married couple. The benefit will be fully refundable, meaning it will not depend on the recipient’s current tax burden. Qualifying families will receive the full amount, regardless of what they owe in taxes. There is no limit to the number of dependents that can be claimed. The IRS will pay $3,600 per child to parents of children up to age five. That changes to $3,000 total for each child ages six through 17. Half of the total will be paid as six monthly payments and half as a 2021 tax credit. The IRS will make a one-time payment of $500 for dependents age 18 or full-time college students up through age 24. As an example, suppose a married couple has a four-year-old child and an eight-year-old child and showed an annual joint income of $120,000 on their 2020 taxes. The IRS would send them a monthly check for $550 starting in July. That’s $300 per month ($3,600 / 12) for the younger child and $250 per month ($3,000 / 12) for the older child. Those checks would last through December. The couple would then receive the $3,300 balance — $1,800 ($300 X 6) for the younger child and $1,500 ($250 X 6) for the older child — as part of their 2021 tax refund. Parents of a child who ages out of an age bracket will be paid the lesser amount. That means if a five-year-old turns six in 2021, the parents will receive a total credit of $3,000 for the year, not $3,600. Likewise, if a 17-year-old turns 18 in 2021, the parents will receive $500, not $3,000. An income increase in 2021 to an amount above the $75,000 ($150,000) threshold could lower a household’s Child Tax Credit. The IRS has confirmed that they’ll soon allow claimants to adjust their income and custodial information online, thus lowering their payments. Failure to do so could increase one’s tax bill or reduce one’s tax refund once 2021 taxes are filed. Eligibility requires that the dependent be a part of the household for at least half of the year and be at least half supported by the taxpayer.
