Kathryn Bruns, CPA
"Prepaid" Child Tax Credit
In case you haven't heard, one of the items from March's "American Rescue Plan", was to send families with children monthly pre-payments of their 2021 Child Tax Credit (normally taken on their tax return). Here's the details:
Prior to 2021, the Child Tax Credit has been $2,000 for children 16 years old and younger. The new 2021 credit is $3,000 for children ages 6 through 17, and $3,600 for children ages 5 and under.
The IRS plans to begin sending monthly payments of these Child Tax Credits beginning around July 15. The $3,600 credit monthly payments will be $300, and the $3,000 credit monthly payments will be $250. The monthly payments will be received on or about the 15th of every month, until December. As a result, only 50% of the total credit will be prepaid with these monthly payments, therefore the rest will be claimed on the 2021 tax return as usual.
Note that there are credit reductions and phaseouts for families with income over a certain level. The threshold is $150,000 adjusted gross income for married file joint filers, $112,500 for head of household filers, and $75,000 for single and other filers. The 2020 tax return will be used as the basis for the prepayments and income thresholds.