The American Rescue Plan that was signed in March 2021 made a few positive changes regarding the Child Tax Credit for taxpayers in 2021, including increased and fully refundable credits. In addition, for 2021, the IRS will make advance monthly payments of 50% of the estimated annual Child Care Credit on the 15th of each month between July and December this year. These payments will come through as direct deposit, physical check or in some cases, debit cards.
How much is the credit?
The maximum annual Child Care Credit will be $3,000 per qualifying child between ages 6 and 17 and $3,600 per qualifying child under age 6, as of December 31, 2021. In either case, the child must live with the taxpayer in the U.S. for more than half the year.
The maximum credit is available to taxpayers with a modified Adjusted Gross Income of:
$75,000 or less for single taxpayers
$112,500 or less for head of household
$150,000 or less for married couples filing jointly and qualifying widowers
The maximum credit phases out for higher income taxpayers.
How will I know if I qualify?
The IRS is sending out letters to families who may be eligible based on the information from their 2019 or 2020 return. If eligible, the IRS will send a second letter out with personalized information, including an estimate of the monthly payment.
Is there a way to let the IRS know I may qualify?
If no return was filed in 2019 or 2020, the IRS has created a new non-filer sign-up tool to register for the advanced child tax credit payments.
How is this different from the Economic Impact Payments (Stimulus Payments)?
The biggest difference is that the advances received will be reconciled on your 2021 tax return using the actual 2021 modified Adjusted Gross Income. That means, unlike the stimulus payments, if you receive too much in advance payments you will owe the difference on your 2021 tax return. Likewise, if you do not receive enough in advance payments, you will receive the difference when you file your 2021 tax return. This distinction makes paying attention to the advance payments very important.
The IRS will debut a portal later in June for those families who don’t want the enhanced payments.
Cray Kaiser is here to help if you have further questions about the childcare credit and advances for 2021. Please contact us today or call (630)953-4900.