“Plus-Up” Stimulus Checks Have Already Been Sent to 9 Million Americans – Will You Get One Too?

If you already received a third stimulus check, you might find an additional check from the IRS in your mailbox in the coming weeks – especially if you filed your 2020 tax return close to the May 17 deadline. The IRS is calling these extra checks “plus-up” payments, and more than 9 million Americans have already receive the supplemental payment. Over 900,000 plus-up payments were sent in just the last six weeks, and more of them will be sent in the weeks and months ahead as the IRS continues to process 2020 tax returns. The big question is: Will you get one?

The IRS is sending plus-up payments to people who received a third-round stimulus check that was based on information taken from their 2019 federal tax return or some other source, but who are eligible for a larger payment based on a 2020 return that is filed and/or processed later. This could happen, for example, if you had a new baby last year that is reported as a dependent for the first time on your 2020 return (see below for other possible reasons).

So, if you recently filed your 2020 return, you might get a plus-up payment soon. If you requested a filing extension and haven’t filed your 2020 return yet, there’s an extra incentive to get it done quickly (i.e., not waiting until October 15 to file your return). Your 2020 return must be filed and processed by the IRS before August 16, 2021, if you want to get a plus-up payment. That means you still have time to act if you got an extension – but not too much time! Plus, the sooner you file your return, the sooner you’ll get your “plus-up” payment (plus any other tax refund the IRS owes you).

How Stimulus Payments Are Calculated

Most eligible Americans have already received their third stimulus check. The “base amount” is $1,400 ($2,800 for married couples filing a joint tax return). Plus, for each dependent in your family, the IRS adds on an extra $1,400. Unlike for previous stimulus payments, the age of the dependent is irrelevant.

However, third-round stimulus checks are then “phased out” (i.e., reduced) for people with an adjusted gross income (AGI) above a certain amount. If you filed your most recent tax return as a single filer, your payment is reduced if your AGI is over $75,000. It’s completely phased-out if your AGI is $80,000 or more. For head-of-household filers, the phase-out begins when AGI reaches $112,500 and payments are reduced to zero when AGI hits $120,000. Married couples filing a joint return will see their third stimulus check drop if their AGI exceeds $150,000 and completely disappear when AGI is $160,000 or more.

The IRS looks at your 2019 or 2020 tax return to determine your filing status, AGI, and information about your dependents. If you don’t file a 2019 or 2020 return, the IRS can sometimes get the information it needs from another source. For instance, it got information from the Social Security Administration, Railroad Retirement Board, or Veterans Administration for people currently receiving benefits from one of those federal agencies (although the IRS may not have gotten all the information it needs to send a full payment). If you supplied the IRS information last year through its online Non-Filers tool or by submitting a special simplified tax return, the tax agency can use that information, too.

If your 2020 tax return isn’t filed and processed by the time it starts processing your third stimulus check, the IRS will base your payment on your 2019 return or whatever other information is available. If your 2020 return is already filed and processed, then your stimulus check will be based on that return. If, however, your 2020 return is not filed and/or processed until after the IRS sends your third stimulus check, but before August 16, that’s when the IRS will send you a plus-up payment for the difference between what your payment should have been if based on your 2020 return and the payment actually sent that was based on your 2019 return or other data.

(Note: The IRS has had tax return processing delays this year. So, even if you submitted your 2020 return before your third stimulus check was sent, your stimulus payment still might be based on your 2019 return because your 2020 return wasn’t processed in time. Returns filed electronically are generally processed faster than paper returns.)

If for some reason you don’t get a plus-up payment, you’ll still get your money if a payment based on your 2020 tax return is higher than the payment you actually received – but you’ll have to wait until next year to get it. In that case, you can claim the difference as a Recovery Rebate credit on your 2021 tax return, which you won’t file until 2022.

[Use our Third Stimulus Check Calculator to compare your payment if it’s based on your 2019 return vs. your 2020 return. Just answer three easy questions to get a customized estimate.]

Who Will Get a Supplemental “Plus-Up” Payment

Again, you’ll only get a supplemental “plus-up” payment if you received a third stimulus check based on your 2019 tax return or other information, but you would have gotten a larger check if the IRS based it on your 2020 return. So, who falls into this category? Of course, it depends on your specific circumstance. However, to give you a general idea, here are a few examples of hypothetical taxpayers who should get a plus-up payment.

You Had Less Income in 2020 Than in 2019: Kay was unemployed for much of 2020. As a result, her AGI dropped from $78,000 in 2019 to $40,000 in 2020. Kay received a $560 third stimulus check that was based on her 2019 return (she is single with no dependents). Since her 2019 AGI was above the phase-out threshold for single filers ($75,000), her payment was reduced. Kay later files her 2020 tax return, which is processed before August 16, 2021. Since Kay’s 2020 AGI is well below the applicable phase-out threshold, her third stimulus check would have been for $1,400 if it were based on her 2020 return. As a result, Kay will receive a $840 plus-up payment ($1,400 – $560 = $840).

You Had a Baby in 2020: Josh and Samantha had their first child in 2020. They’ve been married for five years, and they file a joint return each year. Their AGI was $110,000 in 2019 and $120,000 in 2020, which are both below the phase-out threshold for joint filers ($150,000). The IRS sent Josh and Samantha a $2,800 third stimulus check based on their 2019 return. They filed their 2020 tax return before the IRS sent the payment, but the return was not processed until a week after the payment was sent. That’s why the payment was based on their 2019 return. Since Josh and Samantha claimed their new bundle of joy as a dependent on their 2020 return, their stimulus check would have been for $4,200 if it were based on their 2020 return (i.e., they would have received an additional $1,400 for their baby). As a result, the IRS will send Josh and Samantha a $1,400 plus-up payment ($4,200 – $2,800 = $1,400).

You Got Married in 2020: Patty and Greg were married in 2020. They had a combined AGI of $150,000 in 2020 and have no dependents. In 2019, as separate single filers, Patty had an AGI of $72,000 and Greg had an AGI of $78,000. The IRS sent Patty a $1,400 third stimulus check based on her 2019 return. Since her 2019 AGI was below the phase-out threshold for single filers ($75,000), her payment was not reduced. The IRS sent Greg a $560 third stimulus check based on his 2019 return. Since his 2019 AGI was above the phase-out threshold for single filers, his payment was reduced. Between the two of them, they got a total of $1,960 in third stimulus check payments ($1,400 + $560 = $1,960). After receiving their stimulus checks, Patty and Greg file a joint return for the 2020 tax year that is processed before August 16, 2021. Since the AGI reported on their 2020 joint return does not exceed the phase-out threshold for joint filers ($150,000), their stimulus check would have been for $2,800 if it were based on their 2020 return (i.e., it wouldn’t have been reduced). As a result, the IRS will send Patty and Greg a $840 plus-up payment ($2,800 – $1,960 = $840).

You Used the Non-Filers Tool Last Year: Mary is single and has two dependent children. One turned 15 and the other turned 18 in 2020. Mary was not required to file a 2019 tax return, but she did use the IRS’s Non-Filers tool last year to get a first-round stimulus check. Since children over 16 did not qualify for the extra $500 payment for first-round payments, Mary only reported her youngest child to through the tool. The IRS sent Mary a $2,800 third stimulus check based on the information it received through the Non-Filers tool. Mary later files a 2020 tax return, which is processed before August 16, 2021. She used the head-of-household filing status, reported an AGI of $15,000, and claimed both of her children as dependents. For third-round stimulus checks, an additional $1,400 is added to the total payment for each dependent regardless of the dependent’s age. Since Mary’s 2020 AGI is below the phase-out threshold for head-of-household filers ($112,500), her third stimulus check would have been for $4,200 if it were based on her 2020 return. As a result, Mary will receive a $1,400 plus-up payment ($4,200 – $2,800 = $1,400).

A Federal Agency Supplied Information to the IRS: Ron is a disabled veteran who receives benefits from the Department of Veterans Affairs (VA). He is single and has one dependent child. Ron was not required to file a 2019 tax return, but the VA sent information to the IRS about Ron. The VA did not send any information about Ron’s child. Based on the information it had, the IRS sent Ron a $1,400 third stimulus check. After receiving this payment, Ron files a 2020 tax return, which is processed before August 16, 2021. Ron filed as a single person with an AGI of $18,000 and one dependent. Since Ron’s 2020 AGI does not exceed the phase-out threshold for single filers ($75,000), his third stimulus check would have been for $2,800 if it were based on his 2020 return. As a result, the IRS will send Ron a $1,400 plus-up payment ($2,800 – $1,400 = $1,400).

Source: kiplinger.com

IRS Is Sending More Unemployment Tax Refund Checks This Summer

If you received unemployment benefits last year and filed your 2020 tax return relatively early, you may find a check in your mailbox soon (or a deposit in your bank account). The IRS started issuing automatic tax refunds in May to Americans who filed their 2020 return and reported unemployment compensation before tax law changes were made by the American Rescue Plan. The tax agency has already sent millions of refunds, but additional tax refund checks will be sent through the summer.

The American Rescue Plan Act, which was enacted in March, exempts up to $10,200 of unemployment benefits received in 2020 ($20,400 for married couples filing jointly) from federal income tax for households reporting an adjusted gross income (AGI) less than $150,000 on their 2020 tax return. If you received more than $10,200 in unemployment compensation last year, any amount over $10,200 is still taxable.

The IRS has identified over 10 million people who filed their tax returns before the plan became law and is reviewing those returns to determine the correct amount of tax on their unemployment compensation. For those affected, this could result in a refund, a reduced tax bill, or no change at all. (You can use the IRS’s Interactive Tax Assistant tool to see if payments you received for being unemployed are taxable.)

The IRS is recalculating impacted tax returns in two phases. It started with tax returns from single taxpayers who had relatively simple returns, such as those filed by people who didn’t claim children as dependents or any refundable tax credits. Joint returns filed by married couples who are eligible for an exemption up to $20,400 and others with more complex returns were shifted to phase two.

Remember, though, that the tax exemption only applies to unemployment benefits received in 2020. So, if you receive unemployment compensation in 2021 or beyond, expect to pay federal tax on the amount you get.

Refunds for Unemployment Compensation

If you’re entitled to a refund, the IRS will directly deposit it into your bank account if you provided the necessary bank account information on your 2020 tax return. If valid bank account information is not available, the IRS will mail a paper check to your address of record. (If your account is no longer valid or is closed, the bank will return your refund to the IRS and a check will be mailed to the address the tax agency has on file for you.) The IRS says it will continue to send refunds until all identified tax returns have been reviewed and adjusted.

The IRS will send you a notice explaining any corrections. Expect the notice within 30 days of when the correction is made. Keep any notices you receive for your records, and make sure you review your return after receiving an IRS notice.

The refunds are also subject to normal offset rules. So, the amount you get could be reduced (potentially to zero) if you owe federal tax, state income tax, state unemployment compensation debt, child support, spousal support, or certain federal non-tax debt (i.e., student loans). The IRS will send a separate notice to you if your refund is offset to pay any unpaid debts.

Should I File an Amended Return?

Although the IRS says there’s no need to file an amended return, some early filers may still need to, especially if their recalculated AGI makes them eligible for additional federal credits and deductions not already included on their original tax return.

The IRS, for example, can adjust returns for those taxpayers who claimed the earned income tax credit and, because the exemption changed their income level, may now be eligible for an increase in the tax credit amount which may result in a larger refund. That said, taxpayers will need to file an amended return if they didn’t originally claim the tax credit, or other credits like the additional child tax credit, but now are eligible because the exclusion changed their income, according to the IRS. These taxpayers may want to review their state tax returns as well.

E-Filing Your 2021 Tax Return

Next year, when you try to e-file your 2021 tax return, you will have to sign and validate your electronic return by entering your prior-year AGI or your prior-year Self-Select PIN. If you use your AGI, make sure to use the AGI as originally reported on Line 11 of your 2020 Form 1040 or 1040-SR. Don’t use the corrected AGI if the IRS adjusts your 2020 return to account for the unemployment exclusion.

Withholding from Unemployment Compensation

Again, the $10,200 exemption only applies to unemployment compensation received in 2020. So, to avoid a big tax bill when you file your 2021 return next year, consider having taxes withheld from any unemployment payments you receive this year.

Contact your state unemployment office to have federal income taxes withheld from your unemployment benefits. You may be able to use Form W-4V to voluntarily have federal income taxes withheld from your payments. However, check with your state to see if it has its own form. If so, use the state form instead.

Victims of Unemployment Fraud

Whenever the government starts sending checks, criminals will try to get their hands on some of that money. That’s certainly the case with the unemployment compensation tax refunds. The good news is that you won’t be punished if a crook uses your name and personal information to steal a tax refund from Uncle Sam.

So, for example, if you received an incorrect Form 1099-G for unemployment benefits that you didn’t receive, the IRS won’t adjust your tax return to add the unemployment compensation to your taxable income. You should still report the fraud to the state workforce agency that issued the incorrect form, though.

What About State Taxes?

Just because the federal government is waiving taxes on the first $10,200 of your 2020 unemployment benefits, that doesn’t mean your state will too. To see if your state has adopted the federal exemption for 2020 state tax returns, see Taxes on Unemployment Benefits: A State-by-State Guide.

Source: kiplinger.com

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

The IRS is now making monthly child tax credit payments to eligible families. Depending on the age of your child, those payments can be as much as $300-per-kid each month from July to December. That’s an extra $1,800 per child in your pocket if you get the full amount for six months. But what if the IRS sends you too much money – do you have to pay it back? Maybe.

When the IRS was doling out stimulus check money, they occasionally overpaid someone. But there was nothing in the law requiring repayment of a stimulus check. So, if you got too much, you generally were allowed to keep it.

But that’s not the case with the monthly child tax credit payments. The law authorizing these payments specifically says that any excess amounts must be paid back when you file your 2021 tax return if your income is above a certain amount. There are exceptions to this rule for middle- and lower-income families, but they’re limited. Plus, the way the monthly payments are calculated, overpayments could be fairly common. So, this could be a big issue for a lot of families.

Changes to the Child Tax Credit for 2021

Before getting into how you might end up with an overpayment and the details of the payback rules, it’s probably a good idea to go over some of the changes to the child tax credit that apply for the 2021 tax year (and, so far, only for 2021). Last year, the maximum child tax credit was $2,000 per child 16 years old or younger. It was also phased-out if your income exceeded $400,000 for married couples filing a joint return or $200,000 for single and head-of-household filers. For some lower-income taxpayers, the credit was partially “refundable” (up to $1,400 per qualifying child) if they had earned income of at least $2,500 (i.e., you got a refund check for the refundable amount if the credit was more than the tax you owed).

The American Rescue Plan, which was enacted in March, made some major changes to the child tax credit for the 2021 tax year. For one thing, the credit amount was raised from $2,000 to $3,000 for children 6 to 17 years old and to $3,600 for kids 5 years old and younger. The $2,500 earned income requirement was also dropped, and the credit was made fully refundable (which means refund checks triggered by this year’s credit can be greater than $1,400).

There are also two phase-out schemes in play for families with higher incomes in 2021. The first one can’t reduce the credit amount below $2,000 per child. It kicks in if your modified adjusted gross income (AGI) is above $75,000 (single filers), $112,500 (head-of-household filers), or $150,000 (joint filers). The second phase-out is the same $200,000/$400,000 one that applied before 2021.

Finally, the American Rescue Plan requires the IRS to pay half of your total credit amount in advance through monthly payments issued this year from July to December (you can opt-out if you want). In most cases, the IRS will base the amount of these payments on information it pulls from your 2020 tax return. Next year, you’ll claim the remaining half of the credit on your 2021 tax return. In practice, this will be done by subtracting every dollar you received from July to December from the total credit you’re entitled to claim and then reporting the leftover amount, if any, as a child tax credit on your 2021 return. (Use our 2021 Child Tax Credit Calculator to see how much your monthly payments will be and what should be leftover to claim as a credit on your 2021 tax return.)

For complete coverage of the changes for 2021, see Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

How Child Tax Credit Overpayments Can Occur

You may be wondering why the IRS would send you too much money in the first place. If the goal is simply to give you a 50% advance of your total child tax credit over a six-month period, it doesn’t seem like that would be too difficult. It’s basic math – right?

Well, yes, the math itself is easy…but things change, which can make it difficult to find the right numbers to plug into the computers. For instance, what if your income increases in 2021 to a point where your child tax credit is now partially or completely phased out. The IRS is going to look at your 2020 tax return to calculate the amount of your monthly payment. If your 2020 income was below the credit’s phase-out thresholds, the IRS is probably going to send you the maximum amount each month. However, because of your higher 2021 income, your 2021 child tax credit is going to be lower than expected…which could create an overpayment.

Since the child tax credit phase-out thresholds are tied to your filing status, a similar situation can arise from a change to your family situation in 2021 (e.g., a divorce). For example, imagine that the IRS bases your monthly payments on your 2020 joint return and your 2021 income is lower than the credit phase-out threshold for joint filers. You then use a different filing status on your 2021 return with a lower credit phase-out threshold (e.g., single or head-of-household) that results in a reduced child tax credit amount. That can also generate an overpayment.

If you claim the child tax credit for fewer children in 2021 than you did in 2020, that can result in an overpayment, too. This can happen, for instance, if you’re divorced and you claimed your child as a dependent on your 2020 tax return, but your ex-spouse claims the child as a dependent for 2021 taxes (a common arrangement). In that case, the IRS is going to send you monthly payments for the child. However, since you won’t qualify for the child tax credit on your 2021 return (your ex will), all the money you received from July to December will be an overpayment.

And here’s one more example…your main home must be in the U.S. for more than half of 2021 to qualify for monthly child tax credit payments. If you satisfied that requirement in 2020, but not in 2021, the IRS could end up sending you monthly payments that you’re not supposed to get. That can result in an overpayment as well.

Payback Requirements for the 2021 Child Tax Credit

Now let’s talk about what happens if you end up with a child tax credit overpayment. Depending on your income, you might have to pay some or all of it back as an addition to the tax you owe when you file your 2021 return next year.

Lower-income people get a good deal. If your modified AGI for 2021 doesn’t exceed $40,000 (single filers), $50,000 (head-of-household filers), or $60,000 (joint filers), and your principal residence was in the U.S. for more than half of 2021, you won’t have to repay any overpayment amount. That’s a win for you!

On the other hand, parents with higher incomes don’t get any breaks at all. If your modified AGI for the 2021 tax year is at least $80,000 (single filers), $100,000 (head-of-household filers), or $120,000 (joint filers), you have to pay back your entire overpayment. Ouch!

It’s a little more complicated for people in the middle. All or part of your overpayment might be forgiven if your modified AGI for 2021 is between $40,000 and $80,000 (single filers), $50,000 and $100,000 (head-of-household filers), or $60,000 and $120,000 (joint filers). To determine how much of your overpayment is wiped out (if any), you first need to calculate what the IRS calls your “repayment protection amount.” This is equal to $2,000 multiplied by:

  • The number of children the IRS used to calculate your monthly child tax credit payments, minus
  • The number of children used to calculate the total credit amount on your 2021 tax return.

If there’s no difference between the number of children used to calculate the two amounts, then there’s no overpayment reduction, and the full amount must be repaid. If you have a positive repayment protection amount, it’s then gradually phased-out as your modified AGI increases within the income range above. The phase-out rate is based on how much your modified AGI exceeds the lower limit of the applicable income range. Once your final repayment protection amount is calculated, it’s subtracted from your overpayment to determine how much you need to repay (but your overpayment can’t be reduced below zero).

Here’s an example of how this works: Joe, who is single, claimed a child tax credit for two children on his 2020 tax return (the children are 2 and 4 years old at the end of 2021). As a result, the IRS sent him $3,600 in monthly payments in 2021. However, Joe can’t claim the child tax credit on his 2021 return because his ex-wife is claiming the children as dependents on her return. Since his 2021 child tax credit is $0, the entire $3,600 he received from the IRS is an overpayment. Joe’s initial repayment protection amount is $4,000 (i.e., $2,000 for each child). If Joe files a 2021 return with a modified AGI of $60,000, his modified AGI exceeds the lower limit of the applicable income range – $40,000 – by 50% ($60,000 – $40,000 / $80,000 – $40,000 = 0.5). As a result, Joe’s $4,000 repayment protection amount is reduced by 50% to $2,000. Therefore, Joe only has to repay $1,600 of his $3,600 overpayment ($3,600 – $2,000 = $1,600).

[Note: You may also have to pay a portion of your overpayment if your modified AGI is less than or equal to $40,000 (single filers), $50,000 (head-of-household filers), or $60,000 (joint filers) and you lived outside the U.S. for at least half of 2021.]

How to Prevent Child Tax Credit Overpayments

If you think an overpayment is in your future, there are two things you can do to minimize or eliminate any potential repayment obligation. First, you can opt-out of the monthly payments. If you’re no longer receiving monthly payments, then you might be able to avoid an overpayment altogether (just make sure you meet the deadline for opting out before the next scheduled payment). If you’ve already received enough money from the IRS to create an overpayment, opting out can at least prevent the overpayment from growing larger.

To opt-out, go to the Child Tax Credit Update Portal on the IRS’s website. You’ll need either an existing IRS account or an ID.me account to access the online tool. Although you can’t do it now, later this summer you’ll be able to restart monthly payments through the portal if you previously opted out.

You can also control a potential overpayment by updating any outdated information concerning your income, filing status, or qualifying children that the IRS pulled from your 2020 return or collected from some other source. Once the IRS gets the new information, it can adjust (i.e., lower) your remaining monthly payments to account for the change. This could also prevent or reduce an overpayment.

You’ll have to use the Child Tax Credit Update Portal to report any updates. However, this functionality is not available yet. Again, it should be ready later this summer.

Source: kiplinger.com

The Financial Effects of Losing a Spouse

The death of a spouse is one of the most difficult things imaginable. Besides the emotional toll, surviving spouses typically confront financial issues, which often trigger tax-related questions and consequences. Some of them are fairly straightforward, while others can be tricky. That’s why Letha McDowell, president of the National Academy of Elder Law Attorneys, advises surviving spouses not to make major financial changes immediately. Instead, she tells them to reassess their finances from a tax perspective.

The loss of income after a spouse dies certainly has tax implications. For instance, if a drop in income means the surviving spouse needs to tap into a retirement account, McDowell points out that “the taxes may be less than initially anticipated because, if you have lower income, you may be in a lower bracket.” Less income could also mean that the surviving spouse now qualifies for certain tax deductions or credits that have income caps or phase-out rules. Local jurisdictions often have income-based property tax breaks that may suddenly become available, too.

Eventually, every surviving spouse has a new filing status. A joint federal tax return is allowed for the year the deceased spouse dies if the surviving spouse didn’t remarry. The qualifying widow(er) status may be an option for two more years if there’s a dependent child. After that, a surviving spouse who doesn’t remarry must file as a single taxpayer, which usually means less favorable tax rates and a lower standard deduction.

Inheriting a traditional IRA can also affect the surviving spouse’s taxes, but first, there’s a decision to make. An inheriting spouse can be designated as the account owner, roll the funds into their own retirement account, or be treated as a beneficiary. That decision will affect required minimum distributions and ultimately the surviving spouse’s taxable income.

As either the designated owner of the original account or the owner of the account with rolled-over funds, the surviving spouse can take RMDs based on their own life expectancy. If the third option — staying as the IRA’s beneficiary — is chosen, RMDs are based on the life expectancy of the deceased spouse. “Almost everyone either rolls [an inherited IRA] into their own IRA or at least they transfer it into an account in their name,” McDowell notes. 

“Consolidating makes things much easier to manage.” The third option may make sense if the surviving spouse is at least 72 years old, but the deceased spouse wasn’t. In that case, RMDs from the inherited IRA are delayed until the deceased spouse would have turned 72.

A surviving spouse also receives a stepped-up basis in other inherited property. “If the assets are held jointly between spouses, then there’s a step up in one half of the basis,” McDowell says. “But if an asset was owned solely by the decedent, then that would be a step up of 100%.” In community property states, the total fair market value of property, including the portion belonging to the surviving spouse, becomes the basis for the entire property if at least half its value is included in the deceased spouse’s gross estate.

There’s also a special rule that helps surviving spouses who want to sell their home. In general, up to $250,000 of gain from the sale of a principal residence is tax-free if certain conditions are met. The exemption jumps to $500,000 for married couples filing a joint return, but a surviving spouse who hasn’t remarried can still claim the $500,000 exemption if the home is sold within two years of the deceased spouse’s death.

As for estate taxes, there’s an unlimited marital deduction as well as this year’s $11.7 million estate tax exemption (the amount is adjusted annually for inflation). If the deceased spouse’s estate is nowhere near that amount, the surviving spouse should still file Form 706 to elect “portability” of the deceased spouse’s unused exemption amount. This protects the surviving spouse if the exemption is lowered, as President Joe Biden and others have proposed doing. If that happens, “it’s going to be important for a surviving spouse to have elected portability,” McDowell warns. “And if you don’t file, you don’t get it.”

Source: kiplinger.com

Are You Getting a Monthly Payment for Your Kids? Check the IRS’s Child Tax Credit Portal

If you’re wondering if the IRS is going to send you a child tax credit payment, there’s an easy way to find out. Use the Child Tax Credit Update Portal on the IRS’s website. Right now, this online tool lets you:

  • See if you’re eligible for monthly payments;
  • Opt-out of monthly payments;
  • See a list of your monthly payments; and
  • Update or add your bank information for future monthly payments.

Later, you’ll also be able to update your mailing address for future payments; revise the number of dependents, marital status and income that are used to calculate your monthly payments; and re-enroll for monthly payments if you previously opted out. The ability to change your address is supposed to be available in early August. The other upgrades will take place later this summer.

How Much Will You Get Each Month?

The 2021 child tax credit is worth $3,600 for each child 5 years old or younger and $3,000 for each kid 6 to 17 years of age. Each monthly payment will equal 1/12 of your total credit amount. That comes a maximum monthly payment of $300 for each child under age 6 and $250 for each child ages 6 through 17.

However, the credit amount – and therefore your monthly payment amount – is gradually reduced for wealthier families. So, if your income is high enough, you won’t receive the maximum credit or monthly payment. In fact, certain families won’t get a credit or monthly payments at all because they make too much money.

There will be six monthly payments in 2021. Eligible parents will get them on July 15, August 13, September 15, October 15, November 15, and December 15. The combined total of your monthly payments should equal 50% of your total child tax credit for the 2021 tax year. You’ll claim the rest of the credit when you file your 2021 tax return next year. To get a customized estimate of your monthly payments, use our 2021 Child Tax Credit Calculator.

Direct Deposit of Monthly Child Tax Credit Payments

Most monthly child tax credit payments will be directly deposited into your bank account. That’s what the IRS will do if it has your bank account information from:

  • Your 2019 or 2020 tax return;
  • The IRS’s online tool used last year by people who aren’t required to file a tax return to get a first-round stimulus check;
  • A federal agency that provides you benefits, such as the Social Security Administration, Department of Veterans Affairs, or the Railroad Retirement Board; or
  • The Child Tax Credit Update Portal.

If the IRS doesn’t have your bank account information, you’ll get a paper check or debit card in the mail.

Accessing the Child Tax Credit Update Portal

To help prevent fraud and identity theft, you have to verify your identity before accessing the Child Tax Credit Update Portal. If you have an existing IRS account, use that account’s username and password to sign-in to the portal. You’ll have to enter a security code as part of the multi-factor authentication process.

If you have an existing account with ID.me from a state government or federal agency, you can use the email and password associated with that account to access the portal. You’ll also have to complete the multi-factor authentication process.

If you don’t already have an existing IRS or ID.me account, you’ll have to create a new ID.me account to use the portal. Note that ID.me only authenticates people who are at least 18 years old. If you’re 17 or younger, call the telephone number on the letter the IRS sent you about child tax credit payments if you want to opt-out of monthly payments.

For complete coverage of this year’s child tax credit and monthly payments, see Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

Source: kiplinger.com

PODCAST: Get the Most from the Expanded Child Tax Credit

Listen Now

Subscribe FREE wherever you listen:

Apple Podcasts | Google Podcasts | Spotify | Overcast | RSS

Links and resources mentioned in this episode:

Transcript

David Muhlbaum: Some of us are about to get yet another stimulus from the government. The latest version is the expanded child tax credit, which starting this month means payments to qualifying families. Joy Taylor, editor of the Kiplinger Tax Letter, joins us to talk about how all this will work. Speaking of taxes, as wedding bells ring out again, what does that mean for filers? All coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com senior editor David Muhlbaum, joined by my co-host, senior editor Sandy Block. How are you doing, Sandy?

Sandy Block: I’m peachy.

David Muhlbaum: Just peachy. Yeah. That fruit is coming into season. Question for you though, have you been invited to any weddings?

Sandy Block: Not recently, but it looks like there might be some out there on the horizon.

David Muhlbaum: Oh, who?

Sandy Block: I can’t say, but people are definitely talking about it, getting engaged, talking about it. I’ve heard a lot of stories about people who were going to get married last year and postponed it until fall of 2021 or even later. So it sounds like there’s a lot of marriages sort of in the hopper.

David Muhlbaum: In the works. Yeah.

Sandy Block: In the works. That’s right.

David Muhlbaum: Right. Yeah. That’s why I brought that up, because I feel like we may be on the cusp of an explosion in weddings. Or, not! What I wanted to talk about was a piece Emma Patch wrote for Kiplinger’s Personal Finance that was a good solid recap of how marriage affects taxes. And it’s not like those rules are really going to affect whether someone schedules a wedding in 2021, but they’re good to know and review — you know, personal-finance guidance. But I thought, hey, let’s see what the data says, like, are we on the cusp of a wedding boom? Those anecdotes that you and I have, well, that’s great, but is there data on this? An economic indicator? Because as we know, there’s a ton of money sloshing around the wedding industry. So you would think that people who rent venues, sew dresses, bag bird seed, whatever, they’d want to know. Now, I found a survey from The Knot, the big wedding website that suggested a boomlet. But, it’s a survey of their own readers, so it’s kind of a self-selecting group.

Sandy Block: Right. You’re not going to The Knot if you’re not getting married or at least thinking about it. I guess people could look at marriage licenses. You can’t get married, well, legally, without one of those. I remember getting mine and I got some free household goods out of the deal.

David Muhlbaum: Lucky you.

Sandy Block: Oh yeah.

David Muhlbaum: Well, that’s true. That’s true. But marriage licenses, those are issued by a zillion counties and municipalities, and they don’t tell you what kind of party someone’s going to throw.

Sandy Block: Right. To bring another Emma story into it; we’ve got one in the works. Emma talked to a wedding planner in Portland, Oregon who gave the impression that it’s not necessarily full steam ahead, party down for the wedding industry. Because a lot of her clients still have concerns about guests who might be immunocompromised or have family members who aren’t vaccinated. Young people — what do you do about that? There are still local regulations in many places about large gatherings. So that’s just an anecdote, but it’s from someone right in the heart of the business.

David Muhlbaum: Yeah. I guess we’re not going to get a forward-looking indicator on weddings. So let’s recap the marriage stuff so that we at least squeeze in some actual useful facts before we get to our main segment.

Sandy Block: Right. That’s marriage and taxes.

David Muhlbaum: Right. That’s what we’re going to talk about now. Then we’re going to talk about children and taxes. So, okay. Marriage and taxes. Now, one of those is inevitable and the other isn’t, but when you get married, it can change your tax situation. Now, in the old days, and by old days, I mean before 2017, when you were talking about matrimony and taxes, the word marriage was usually followed by penalty, marriage penalty. It was just one of those things that people like you and me would talk about with the younger people getting engaged. “Well, it’s lovely that you and McKayla are tying the knot, but it’s a pity about that marriage penalty.”

Sandy Block: But nowadays, when someone tells me that their partner doesn’t want to get married because of the marriage penalty, I just tell them, “Your partner just doesn’t want to get married.” Because under the 2017 tax law, the marriage penalty pretty much went away except for the very wealthy. In fact, some couples may actually enjoy a marriage bonus, and what this is all about is the idea of filing jointly, putting the spouse’s incomes together. I sometimes hear from people who say, “Well, we’ll just file separately and save taxes.” No, you won’t. The IRS is onto that, and it doesn’t want you lowering your taxes by filing separately. But under the current regime, it’s very unlikely that filing jointly will result in a higher combined tax bill than you would have if you never got married and just lived together.

David Muhlbaum: There still could be reasons though to file separately, to pass up that new marriage bonus.

Sandy Block: Right. I guess the major one, and this is probably something you should seriously think about if you’re thinking about getting married, is that if your spouse commits fraud. Or to be less harsh, maybe your spouse has his own business, and maybe it’s not reported all of his or her income. You could be on the hook for that, if you’re married. if you’re single, you’re off the hook. So certainly file separately if you think that the IRS has the goods on your spouse.

David Muhlbaum: Yeah. You might want to have a little chat there.

Sandy Block: I think this is a good thing.

David Muhlbaum: Yeah. But the marriage penalty might be alive and well at the state level, right? I mean, we’ve got 50-plus regimes to deal with there.

Sandy Block: Yes. Absolutely, and that’s something that Emma covered in her story. There are 15 states that have a marriage penalty built into their tax bracket structure. Seven states and the District of Columbia, however, offset the marriage penalty in their bracket structure by allowing married taxpayers to file separately in the state, even if they filed jointly on their federal tax return.

David Muhlbaum: Yeah. Of course, there are a good number of states that don’t have an income tax at all, or a flat one. Hey, check out Kiplinger’s Tax Map for that, newlyweds. When we return, more on taxes — but different ones — with Joy Taylor, editor of the Kiplinger Tax Letter.

Child Tax Credit with Joy Taylor

David Muhlbaum: Welcome back to Your Money’s Worth. The American Rescue Plan, remember that, is still pumping money into the economy. The latest flow starts this month with advanced payments from the IRS, for the expanded child tax credit. Unlike earlier stimulus efforts that went extremely wide with the goal to put cash in the pockets of just about every taxpayer as quickly as possible, the expanded child tax credit is a more tailored affair. Like number one, you’ve got to have kids, but that’s not all there is to it, and a range of income limits apply. Joy Taylor, the editor of the Kiplinger Tax Letter will help us sort out this complex program to make sure you can take advantage of it in the best way for your finances. If you’re sitting there thinking, hey, I pay taxes. I don’t have kids, what’s up with that? We’ll touch on those issues a bit too. So welcome, Joy. Thanks for joining Your Money’s Worth. First time, right?

Joy Taylor: Yes, it is. Thanks for having me, David and Sandy.

David Muhlbaum: It isn’t our first go round with the expanded child tax credit though. Earlier this year, we had Rocky Mengle, Kiplinger’s senior tax editor here on Your Money’s Worth to talk about stimulus checks. Then Sandy, you asked him about the child tax credit.

Sandy Block: I just like to stay ahead of the news. Are you blaming me for that?

David Muhlbaum: A little. I have no doubt that Rocky did the best job imaginable in laying out how the child tax credit worked up until now, because child tax credits aren’t new, let’s make that clear. And then, how the American Rescue Plan was going to expand it. But at the end, I was still like, oh my God, this is complicated and who is going to remember all those numbers and phaseouts and income levels? That was even before we knew how the government itself was going to administer the program, which is its own new layer of complexity.

Sandy Block: Right. But the news here is that people are going to start getting checks, and that’s one of the things that Joy is going to give us details on.

David Muhlbaum: Yeah. Yeah, absolutely. Absolutely. That’s why we’re doing this again. But the problem of the numbers, and the phaseouts, and the income levels, it hasn’t gone away. So right off the bat, I want to plug a tool that we’ve come up with here at Kiplinger, that you can go online and use to see how the expanded child tax credit works for you. It’s the 2021 Child Tax Credit Calculator, and it does exactly what it says on the tin. Because, even if we do the most exhaustive explanation possible here today, you’re probably going to forget some portion of what we said, and in any case, you’ll want to run your own numbers. So “Child Tax Credit Calculator,” search those words or look in our show notes. The other thing we’re going to plug now, and maybe later, depending on how stuck we get, is Joy’s FAQ piece, “Child Tax Credit 2021. Who Gets $3,600? Will I get Monthly Payments?” I’ll also link to that in the show notes.

David Muhlbaum: Sorry, Joy. I’m trying to make this easier on everyone, you included. In fact, my first question is going to attempt to skip past all those numbers altogether, and just get you to talk about one of the main things that makes the expanded child tax credit so different. That is, if you qualify, you get some of the money upfront, as Sandy mentioned. Government pays you! So if someone wasn’t paying attention to us or lived under a rock or whatever, they could end up having money appear in their bank account, starting July 15th, just like that.

Joy Taylor: Yes. That’s true, David. The expanded child tax credit allows for advanced monthly payments of the credit. It’s sort of based on the stimulus payments from earlier, from last year, and then earlier this year. People who, eligible families who qualify, will receive, starting July 15th, a monthly payment, per child. A monthly credit per child, depending how many children they have, their income, et cetera, for six months this year. So it’ll be July 15th and pretty much the 15th of each month until December. They’ll be getting these payments of this child credit up front. That puts more money in peoples’ pockets to help them, to help them pay their rent, their mortgage, food, or whatever they want to do with the money. Remember, the payments are an upfront sort of advance of a child credit that will be taken on your tax return that you file next year.

Sandy Block: So Joy, David didn’t want to get too bogged down in the numbers, but let’s go for the big number. What’s the most money that parents can get from this program?

Joy Taylor: So it all depends on the number of children you have and the age of the child. So the most money is $3,600 per child under the age of six, $3,000 per child from age six through 17. So when you’re talking about, that is the total annual credit per child that you have. When you’re talking about advanced payments, you’re talking about at least $300 per month, per child under age six, $250 per month, per child age six to 17. Let’s say you have two children, one five, one 10, you’ll be getting, and your income, you qualify for the full credit. You could get payments per month of $550.

David Muhlbaum: Wow. Okay. Just to be clear, there’s no cap on the number of kids, right?

Joy Taylor: Yeah. So there’s no cap on the number of kids, there’s just a cap on the ages of the children, but not on the number of children.

David Muhlbaum: That’s between you and your household, if .. okay, okay., go for it. Since we’ve gone there, in terms of numbers, let’s talk about the income limits. So the child tax credit has always been income-limited, make too much, you don’t get it. But now there are two tiers of income limits in effect? Can you outline how that works a little bit please, Joy?

Joy Taylor: Sure. I think the easiest way to do this is to first discuss the rules that were in effect prior to 2021, prior to this year. So the income levels that were in effect for 2020 was $200,000 for single people and $400,000 for married people. So if your income levels exceeded that, that’s when the child credit started to phase out. For 2021, you still have those $200,000 and $400,000 income levels for the $2,000 child credit. But for the people who qualify for the higher child tax credit of $3,000 or $3,600, based on the age of the child, those income levels are different, they’re lower. So those income levels are $75,000 for single people, $150,000 for married people. So you have two different income levels: You have income levels to qualify for the higher child tax credit of $3,000 or $3,600, and you have the income levels to qualify for the $2,000 child tax credit.

David Muhlbaum: If we’re going to try to shorthand those, essentially you can make more money and get the old one. To get the bigger new one, the income limits are lower.

Joy Taylor: Yes. To get the bigger new one, the income limits are $75,000 for single people and $150,000 for married people. By the way, that’s adjusted gross income figures, not taxable income figures. One thing though that I should just clarify when we go back to the advanced payments is, people who only qualify for the $2,000 child tax credit — so people with higher incomes, I mean, wealthy people; I’m talking about, up to $400,000 if you’re married — you still will get advanced monthly payments.

David Muhlbaum: Whoa! I didn’t even realize that one.

Joy Taylor: You’ll still get a monthly payment of up to $167 a month. So the monthly payment does not apply only for-

Sandy Block: Oh interesting.

Joy Taylor: The people on the lower end of the income scale. The monthly payments, the advanced payments are for anyone who qualifies for the child tax credit.

Sandy Block: Alright. Lots of people get a check.

Joy Taylor: Yeah. I don’t think many people know that-

Sandy Block: No. I think that’s really interesting.

Joy Taylor: I don’t think that’s been widely publicized, because this has generally been publicized and been talked about by lawmakers as an anti-poverty.

Sandy Block: Right. Right.

Joy Taylor: It’s an anti-child-poverty measure. So you’re wondering, well, why would someone, why would a family who makes $400,000 get $167 a month per child as payments.

Sandy Block: Right. Which is kind of the same discussion that went on over the stimulus checks. But along those lines, we should note that this is, right, a one-year program. So in 2022, the tax credit won’t go away, but it would go back to the old values and phaseouts. Is that right?

Joy Taylor: That is right now. So yes, the program is only for 2021. So in 2022, the income levels and ..the higher income levels and the $2,000 child credit will come back. All the advanced payments and the higher child tax credit would go away. However, lawmakers want to make this permanent. As I said, this is a, I’d mentioned before, it’s an anti-child-poverty program. So lawmakers, especially Democratic lawmakers, want to make the program permanent. President Biden had proposed for it to go through 2025. He wants to make it permanent too. That’s just solely, 2025 is just because of a federal budget issue. But Democratic lawmakers want this to be a permanent, essentially permanent stimulus payments.

David Muhlbaum: Do we have any sense of what the cost of this program is? Essentially by the government passing up revenue by doing this program, the expanded child tax credit?

Joy Taylor: Yeah. The cost of the expanded child tax credit is estimated to be about $107 billion for essentially the 2021-2022 year.

David Muhlbaum: Bingo. Okay. That’s pretty precise. So in essence, Joy, on one hand, we could look at this from a policy perspective as: The child tax credit is a subsidy for having kids. Now, it’s a more generous subsidy for having kids. There will probably be people who are opposed to government spending on the face of it, they may be opposed to government spending for anything. But I’m just curious, kids are popular, but, is there a constituency that pushes back against this?

Joy Taylor: Well, I don’t know, when you say pushes back against this. Some might say fiscal hawks and more conservatives might push back against these government programs or a higher child tax credit. However, when you look at history, in 2017, then-President Trump and Republicans passed a tax reform law. That tax reform law actually doubled the child tax credit from $1,000 to $2,000. So, subsidizing children, it’s not a partisan idea.

David Muhlbaum: No. That makes sense. That makes sense. But yes, there could still be… I just sort of imagined in my mind, there are people going, “but wait a minute, I pay taxes, too.” But I see your point. Children are bipartisanly popular. Again, Sandy, we’ve talked in the past about, well, how do other countries do it? Definitely, if you look at the tax regimes of countries like the UK and many others, there are specific carve-outs like this, where there is favorable tax treatment for having children. Sandy, you had a question about how this is actually going to work.

Sandy Block: Yeah. Just last week, the IRS Taxpayer Advocate put out a report, a really devastating report about IRS service. How many tax returns have not been processed. How only about five people in the United States actually got through calling? I’m exaggerating, but hardly anybody who called the IRS talked to a person. So I guess this is a program, once again, that we’re looking to the IRS to manage. Are they going to be able to pull this off? They already had to do stimulus checks, unemployment benefits adjustments. I mean, we’re really asking a lot of an agency that by every indication is underfunded and understaffed. Is that going to be problem, do you think?

Joy Taylor: So there are definite concerns. I mean, IRS has been underfunded for years. They keep losing personnel. They keep having to deal with changes in the tax laws. So, I can understand those concerns, and there very well could be issues in the future. However, I actually was pleasantly surprised by how well IRS handled stimulus payments. That was put on IRS very quickly. IRS did not know that was coming, and that was put on them quickly. Yes. That was a one-time payment, which actually ended up being three times. But the IRS overall, with hiccups here and there, overall did a good job with the stimulus payments. I think because of that, Congress thought that IRS could handle the job of deal of handling, paying out child payments.

Now, it is going to be difficult. IRS had to create all sorts of systems, all sorts of new tools on their website … they’re going out and doing press. They’re trying to advertise this credit to everyone. I mean, not just to people with money and people who might listen to this podcast. But also to people in public housing who would qualify for the credit. So IRS has a lot on its shoulders, but I don’t know. At the beginning of this, I had thought that IRS would not be able to handle it, now I’m becoming a bit more optimistic. So far they’ve been meeting the timeframes.

David Muhlbaum: Well, that’s good news. The individual though, has some control here too. You mentioned the systems that the IRS has been setting up to make the system, to make the payouts work. The individual who’s eligible can also check in to make things go smoothly. Can you talk a little bit about what those are and how people should do that?

Joy Taylor: Sure. So there are a few things. First off, I guess the first main issue, the first main question is, do you want these child payments? Do you want these monthly payments? Or would you rather take the full credit when you file your tax return next year? As I said upfront, the monthly payments are advances of the child tax credit that you will take on your 2021 return that you’re going to file.

David Muhlbaum: As you also mentioned, they may be going to people who, well, it doesn’t make that big a difference for them.

Joy Taylor: Right. Right. So some people might want to, instead of receiving monthly payments, maybe they would like a large refund when they file their return next year. So IRS has, well, IRS pursuant to the law because the law requires that IRS allow people to opt out of monthly payments. So these people will still qualify for the child tax credit, but they don’t have to receive monthly payments if they do not want to.

Joy Taylor: If you want to opt out, IRS has created a tool, it’s called the Child Tax Credit Update Portal. So you go onto that tool online to essentially opt out. You generally have to… If you don’t want the payments, you generally have to opt out at least two weeks prior to the next scheduled payment. So it’s too late to opt out for the July 15th payment. If you want to opt out for August and the next five payments, then you have to do that I think by early August.

Sandy Block: Joy, can you also use this portal to update information? Maybe you’ve got a child the IRS doesn’t know about?

Joy Taylor: Yes. Although that feature is not yet available, it will be on that portal. You can update the portal to provide if there’s a change in your income level, if there’s a change in the number of children, the age of your children. Because IRS is generally, if you think about this, IRS is generally going to look at your 2020 returns and 2020 information to figure out the amount, if you qualify for advance payments, and the amount. So if your circumstances are changing in 2021, or you know they’re going to, then you are going to want to go on to the Tax Credit Update Portal on IRS’s website and make those changes.

Sandy Block: I’m thinking, yeah-

David Muhlbaum: If you have a newborn for 2021 right?

Sandy Block: That’s what I’m thinking. If you had triplets this year, you’re going to want to go to that portal.

Joy Taylor: Well, you want… Yes, that’s true, but remember, you’ll want to go to that portal if you want the payments in advance for those triplets.

Sandy Block: I think if I had triplets I’d want that money.

Joy Taylor: Yeah. So you’ll still qualify for the credits, right? Do you want that money now? Do you want the money each month? Or would you rather receive, if you’re eligible, I don’t know, my math is awful. But whatever $3,600 times three is, like $10,000, is it $10,800? All at once.

David Muhlbaum: Well, diapers.

Sandy Block: That’s what I was going to say, David. That’s a lot of diapers. I think I’d want the money now. The other issue, because this came up with the stimulus checks is: Will people be able to use that portal to update their bank accounts? So I assume most folks are going to get this direct deposit.

Joy Taylor: Yes, and that feature is already up.

Sandy Block: Oh, great. Okay.

Joy Taylor: So yeah. So yeah, IRS is generally going to send, if they have your bank account information, they’ll directly deposit the monthly payments. Otherwise, they’ll send a check. If you don’t think IRS has your information, you can go in and update it.

David Muhlbaum: Got it. Now, we talked about the idea of not receiving the monthly payments because well, you’d rather have the money later or you don’t need it right away, that sort of thing. There are good reasons to do that. But it makes me think a little bit of the flip situation, which is when someone not only really needs the money, but that child tax credit could end up being an income to them. What I’m driving at here is the fact that, my understanding is that not only was the prior child tax credit, what’s called fully refundable, but the new one is as well. Which means that even if your federal income tax liability is zero, you still get money. Did I get that right?

Joy Taylor: Okay. Well, partly.

David Muhlbaum: Or sort of?

Joy Taylor: Sort of. Sort of. The prior child tax credit was not fully refundable.

David Muhlbaum: Oh, okay.

Joy Taylor: It was only refundable up to $1,400 per child, and only for very low-income people. You had to have at least $2,500 of earned income, meaning you had to have been working, et cetera. All of those limitations are now gone. So now for 2021, the child tax credit is fully refundable, meaning, even if you have no tax liability, you can get the money. You don’t, by the way, families do not have to have earned income. So for non-working families, maybe families looking for a job, families on various government subsidies, et cetera. If they don’t have any income at all, they’re still eligible for the child tax credit payments.

Sandy Block: I guess that’s why this is being promoted by supporters as an anti-poverty program, because people who really need the money are going to get it.

Joy Taylor: Well, exactly, I mean, just think if you have a very low-income family with say, three young children under the age of six. I’m just giving an example. I mean, this family will get $900 a month from July through December, and then the remaining credit. The remaining credit they could take on their tax return, and get refunded for the other half of the portion. Because remember these advanced payments are only for half of the higher child tax credit.

David Muhlbaum: Yes. That’s a very good point to make, because we do have, as I said at the start, a lot of dollar values floating around. Yeah. You get the money upfront and you get the money at the back. Seems pretty good if you’re going to take it. One other fine slice on the question of it being not only fully refundable, but essentially money for people who really need it. There’s some question here, whether you could get over-credited in your advanced payments, and then not be on the hook for adjusting. Can you see what I’m stumbling about, trying to get at here?

Joy Taylor: Yeah. So, yeah. So there are instances where IRS is going to probably pay, I don’t know maybe as much this year, because they’re only paying half of the credit. But maybe they’re paying it to people who don’t qualify for the credit at all, or to qualify maybe for much less. There are going to be instances where IRS is going to be paying too much of the child tax credit.. Essentially the payments that you receive are going to be an excess of the child credit that you’re actually entitled to when you file your return next year.

David Muhlbaum: But it would get balanced out then, but you’re never going to have to give money back. You just don’t get as much on the second half.

Joy Taylor: Well, you might have to give money back. I mean, it all just depends, when you do the whole balancing out, let’s say, there might be instances maybe where the advanced payments exceed the total child tax credit that you are entitled to. Some people will have to pay, depending on your income, will have to pay the excess back. This is unlike the stimulus check or essentially the stimulus check, if you got it and then your income is way too high-

Sandy Block: It was all yours. Yeah.

Joy Taylor: It was all yours. So with the child tax credit, it doesn’t quite work that way, but there is a safe harbor though. The safe harbor essentially is, if you’re single with income of less than $40,000 or married with income of less than $60,000, you don’t have to pay anything back, even if you’re not entitled to what you received.

David Muhlbaum: Bingo. Okay.

Joy Taylor: If your income is for single people above $80,000, $120,000 for married people, you’ll have to pay anything you received in proper, you’ll have to pay it back. Anything excess you’ll have to pay back. For people in the middle, they’ll have to pay a portion of it back.

David Muhlbaum: Got it. So yet again, there’s another income threshold and I’m going to go, it’s such a good thing that you put together that FAQ, because when we get boxed into a corner, we can go look at that.

Joy Taylor: Yeah. Sorry about those numbers.

David Muhlbaum: No problem.

Joy Taylor: But sometimes they are important.

David Muhlbaum: Well, thank you so much, Joy, for joining us today, and walking us through our partial knowledge and improving it. I hope you’ve improved other people’s knowledge as well. As I said before, check out those links. They’re really good. Thank you so much, Joy.

Joy Taylor: Thank you.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and review. If you’ve already subscribed, thanks, please go back and add a rating or review if you haven’t already. To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed. Go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. If you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

 

Subscribe FREE wherever you listen:

Apple Podcasts | Google Podcasts | Spotify | Overcast | RSS

Source: kiplinger.com

When Will Your Next Monthly Child Tax Credit Payment Arrive?

Parents from all over the country cheered when they received their first child tax credit payment. Getting up to $300-per-child each month (depending on the age of the child) can be a lifesaver for families who are struggling financially because of the pandemic. But Americans had to wait for months after the program was announced before receiving any money. Now that the first round of payments has been delivered, the waiting begins again for the next round of direct deposits, checks, and debit cards.

The IRS sent payments to approximately 35 million families on July 15. Additional payments will follow each month through the end of the year according to the schedule below. As it stands right now, the payments will not carry over into 2022 (although President Biden wants to extend them beyond this year), so plan accordingly.

Schedule of 2021 Monthly Child Tax Credit Payments

PAYMENT

DATE

1st Payment

July 15, 2021

2nd Payment

August 13, 2021

3rd Payment

September 15, 2021

4th Payment

October 15, 2021

5th Payment

November 15, 2021

6th Payment

December 15, 2021

How Much Will You Get Each Month?

For most people, the combined total of the six monthly payments will equal 50% of the child tax credit they’re expected to qualify for on their 2021 tax return. They’ll claim the other half when they file their 2021 return next year. (Note that the monthly child tax credit payment amounts won’t include the $500 credit available for older children, elderly parents, and other dependents.)

For 2021 only, the child tax credit is increased from $2,000 for each child age 16 or younger to $3,600 per child for kids who are 5 years old or younger and $3,000 per child for kids 6 to 17 years of age. That translates into a maximum monthly payment of up to $300 for each child under age 6 and up to $250 for each child ages 6 through 17. Families with higher incomes won’t receive that much or could be denied the credit altogether. But most eligible parents will see a considerable bump in their child tax credit for the 2021 tax year. (Use Kiplinger’s 2021 Child Tax Credit Calculator to see how large your credit will be this year and how much you’ll get each month.)

How Will Monthly Child Tax Credit Payments Be Paid?

Most families will get their monthly child tax credit payments deposited directly into their bank account. That’s how you’ll get paid if the IRS has bank account information from:

  • Your 2019 or 2020 tax return;
  • The IRS’s online tool used in 2020 by people who aren’t required to file a tax return to get a first-round stimulus check; or
  • A federal agency that provides you benefits, such as the Social Security Administration, Department of Veterans Affairs, or the Railroad Retirement Board.

If the IRS doesn’t have your bank account information, it will send you a paper check or debit card by mail.

You can use the IRS’s Child Tax Credit Update Portal to change the bank account information the IRS has on file. The online tool will tell you if you’re scheduled to receive monthly payments by direct deposit. If so, it will list the bank routing number and the last four digits of your account number. If you don’t change it, this is the account that will receive all future monthly payments.

If you want to change the bank account starting with the August 13 payment, you can do so by updating the bank routing number and your account number and indicating whether it’s a savings or checking account. Note that monthly payments can’t be split between multiple accounts – the entire payment must go into one bank account.

Families who aren’t currently scheduled to receive payments by mail can also sign up for direct deposit using the Child Tax Credit Update Portal to add their bank account information. Just enter your bank routing number and account number and indicate whether it’s for a savings or checking account. You’ll get paid much faster if you switch to direct deposit, plus you won’t have to worry about a paper check or debit card getting lost or stolen.

Opting Out of Monthly Child Tax Credit Payments

What if you don’t want to receive monthly child tax credit payments? No problem! You can opt-out through the Child Tax Credit Update Portal (although there are deadlines for opting out each month).

Why might someone want to opt-out of monthly payments? For example, to boost your tax refund, you may want to claim a larger child tax credit when you file your 2021 tax return next year. It also might be smart to opt-out if you no longer qualify for the child tax credit. This could happen if your 2021 income is too high, someone else (e.g., an ex-spouse) will claim your child as a dependent in 2021, or you live outside the U.S. for more than half of 2021. Otherwise, you might have to pay back some or all the money you received as monthly payments this year.

More Information on the 2021 Child Tax Credit

In addition to increasing the credit amount and authoring monthly advance payments, Congress made other changes to the 2021 child tax credit, too. For example, the age for an eligible child was raised to 17, the credit is fully refundable, and the $2,500 earnings floor was removed. An additional layer of phase-outs was also introduced to prevent wealthier families from claiming a larger credit.

Right now, these enhancements only apply to the 2021 tax year. But, as mentioned earlier, President Biden wants to extend most of them through 2025. (The credit would be fully refundable on a permanent basis under the president’s plan.) Whether that happens remains to be seen, but it is certainly possible while Democrats control both houses of Congress and the White House.

We’ll continue to cover any further child tax credit developments, but in the meantime you can get up-to-speed on all the changes for this year’s credit at Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs.

Source: kiplinger.com

Child Tax Credit 2021: How Much Will I Get? When Will Monthly Payments Arrive? And Other FAQs

The child tax credit is bigger and better than ever for 2021. The credit amount is significantly increased for one year, and the IRS is making monthly advance payments to qualifying families from July through December.

But the changes are complicated and won’t help everyone. For instance, there are now two ways in which the credit can be reduced for upper-income families. That means some parents won’t qualify for a larger credit and, as before, some won’t receive any credit at all. More children will qualify for the credit in 2021.And, next year, when you file your 2021 tax return, you will have to reconcile the advance payments you received with the actual child tax credit you are entitled to.

It’s all enough to make your head spin. But don’t worry – we have answers to a lot of the questions parents are asking right now about the 2021 child credit. We also have a handy 2021 Child Tax Credit Calculator that lets you estimate the amount of your credit and the expected advance payments. Once you read through the FAQs below and try out the calculator, you should feel more at ease about the 2021 credit.

1 of 21

2020 Child Tax Credit

picture of calculator with "Tax 2020" showing on the screenpicture of calculator with "Tax 2020" showing on the screen

Question: What were the rules for the 2020 child tax credit?

Answer: For 2020 tax returns, the child tax credit is worth $2,000 per kid under the age of 17 claimed  as a dependent on your return. The child must be related to you and generally live with you for at least six months during the year. He or she must also be a citizen, national or resident alien of the United States and have a Social Security number. You must put the child’s name, date of birth and SSN on the return, too.

The credit begins to phase out if your modified adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Once you reach the $400,000 or $200,000 modified AGI threshold, the credit amount is reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Modified AGI is the AGI shown on Line 11 of your 2020 Form 1040 (or Line 8b of your 2019 Form 1040), plus the foreign earned income exclusion, foreign housing exclusion, and amounts excluded from gross income because they were received from sources in Puerto Rico or American Samoa.

Up to $1,400 of the child credit is refundable for some lower-income individuals with children. However, you must also have at least $2,500 of earned income to get a refund.

2 of 21

Changes Made for 2021

picture of two signs saying "Goodbye 2020" and "Welcome 2021"picture of two signs saying "Goodbye 2020" and "Welcome 2021"

Question: What changes did Congress make to the child tax credit?

Answer: The American Rescue Plan Act of 2021 temporarily expands the child tax credit for 2021. First, it allows 17-year-old children to qualify for the credit. Second, it increases the credit to $3,000 per child ($3,600 per child under age 6) for many families. Third, it makes the credit fully refundable and removes the $2,500 earnings floor. Fourth, it requires half of the credit to be paid in advance by having the IRS send monthly payments to families from July 2021 to December 2021.

Note that the other general rules for child-tax-credit eligibility continue to apply. For instance, the child still must be a U.S. citizen, national or resident alien and have a Social Security number. You also must claim him or her as a dependent on your 2021 tax return, and the child must be related to you and generally live with you for at least six months during the year. And you still have to put the child’s name, date of birth and SSN on the return.

3 of 21

Qualifying for the Higher Credit Amount

picture of a grumpy family sitting on their couch at homepicture of a grumpy family sitting on their couch at home

Question: Do all families qualify for the higher per-child tax credit of $3,000 or $3,600?

Answer: No, not all families with children will get the higher child tax credit, but most will. The enhanced tax break begins to phase out at modified AGIs of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit.

For example, if a married couple has one child who is four years old, files a joint return, and has a modified AGI of $160,000 for 2021, they won’t get the full $3,600 enhanced credit. Instead, since their modified AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100.

4 of 21

Additional Phase-Out

picture of rich family getting on a private jetpicture of rich family getting on a private jet

Question: If my 2021 income is higher than the thresholds for taking the $3,000 or $3,600 per-child tax credit, do I still qualify for the $2,000-per-child credit?

Answer: It depends. Families who aren’t eligible for the $3,000 or $3,600 credit in 2021, but who have modified AGIs at or below $400,000 on joint returns or $200,000 on other returns, could claim the regular credit of $2,000 per child, less the amount of any advance payments they get. Families with modified AGIs above the $400,000/$200,000 thresholds will see the $2,000 per-child credit reduced by $50 for each $1,000 (or fraction thereof) of modified AGI over those thresholds.

For example, if a married couple has one child who is seven years old, files a joint return, and has a modified AGI of $415,000 for 2021, they won’t get the full $3,000 enhanced credit. First, because of their high income, they don’t qualify for the extra $1,000 (see question above), so their credit is reduced to the regular amount of $2,000. Then, since their modified AGI is $15,000 above the second phase-out threshold for joint filers ($400,000), their credit is reduced again by $750 ($50 x 15) – resulting in a final 2021 credit of $1,250.

5 of 21

17-Year-Old Children

picture of birthday cake with a "one" and a "seven" candle on itpicture of birthday cake with a "one" and a "seven" candle on it

Question: Can I take the higher child tax credit for my daughter who turns 17 in 2021?

Answer: Yes. If you meet all the other rules for taking the child tax credit, you can claim the credit for your daughter when you file your 2021 Form 1040 next year. The age for children qualifying for the credit for 2021 is 17 and under (a change from 2020’s requirement of 16 and under). So, 17-year-olds qualify as eligible children for the child credit for 2021.

6 of 21

Fully Refundable

picture of a tax form focused on the refund linepicture of a tax form focused on the refund line

Question: What does it mean that the child tax credit is fully refundable for 2021?

Answer: The expanded child credit is fully refundable for families  who live in the United States for more than one half of 2021. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit exceeded the taxes they otherwise owed. Under the new rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability.

Parents don’t need to be employed or otherwise have earnings in order to claim the child credit for 2021. Prior rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules.

7 of 21

Information from Tax Returns

picture of a 2020 tax formpicture of a 2020 tax form

Question: Who gets the advance payments?

Answer: The American Rescue Plan requires the IRS to pay half of the tax credit in advance. The IRS is sending out monthly payments (mainly in the form of direct deposits) from mid-July through December to eligible families. The IRS is basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks to your 2020 return, and if a 2020 return has not yet been filed, the IRS looks to your 2019 return. The IRS also has procedures for families who are not otherwise required to file tax returns.

8 of 21

Timing and Frequency of Advance Payments

picture of July 2021 calendar with July 15 circledpicture of July 2021 calendar with July 15 circled

Question: When will the IRS start making payments, and how many payments will I get?

Answer: The IRS will make six monthly child tax credit payments to eligible families from July to December 2021. The first round of payments will arrive on July 15. After that, payments will be issued on August 13, September 15, October 15, November 15 and December 15.

Most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. Most eligible families do not have to do anything to get these payments. The IRS has a tool on its website for families who want to update their bank information with the IRS.

9 of 21

Amount of Monthly Payments

picture of a father and son sitting on a couch holding a lot of moneypicture of a father and son sitting on a couch holding a lot of money

Question: How much will a family get each month?

Answer: The advance payments account for half of a family’s 2021 child tax credit. The amount a family receives each month varies based on the number of children in the family, the ages of the kids and the amount of the family’s adjusted gross income. For example, families who qualify for the full $3,000 ($3,600 for children under age 6) credit per child get monthly payments of $250 per child ($300 per child under age 6) for six months. Families with higher incomes who qualify for the $2,000 credit get monthly payments of $167 per child for six months. (Yes, advance payments will go to all families who are eligible for the child tax credit, and not just to those who qualify for the $3,000 or $3,600 per-child higher credit).

Take a family of five with three children ages 12, 7 and 5. Assuming the family qualifies for the higher child credit and doesn’t opt out of the advance payments, they will get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 federal tax return next year.

If that same family with three children qualifies for the $2,000 per-child credit and doesn’t opt out of the advance payments, they will get $500 per month from the IRS from July through December, for a total of $3,000. They will then claim the additional $3,000 in child tax credits when they file their 2021 Form 1040 next year.

Use our 2021 Child Tax Credit Calculator to see how much you’ll get!

10 of 21

Changes to Your Family or Income

picture of man holding sign saying "Lost My Job"picture of man holding sign saying "Lost My Job"

Question: What if my family circumstances change during the year and I have more income or less income than shown on the 2019 or 2020 return that I filed with the IRS?

Answer: As mentioned above, the IRS is generally basing eligibility for the credit and advance payments, and calculating the amount of the advance payment, based on previously filed tax returns. It first looks at your 2020 return. If you haven’t filed a 2020 return, the IRS looks at your 2019 return. The IRS assumes that the number of children and the income that you reported on your 2020 (or 2019) return are the same for 2021. It accounts for the passage of time only for determining the age of the children.

The IRS has developed a Child Tax Credit Update Portal. Right now, the tool’s features are limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update your income, marital status and the number of qualifying children. You will also be able to update your mailing address and view your payments. So, if your circumstances changed in 2021, and you believe those changes could affect the amount of your child credit for 2021, go onto that portal once it is fully functional and update it for the correct information.

The IRS is also sending two rounds of letters to families that it believes may be eligible for monthly child credit payments based on 2019 or 2020 tax return data. The first round is generally for informational purposes. The second round of letters will list the family’s estimated monthly payment amount. You can also check your eligibility status for advance payments on the IRS’s Child Tax Credit Update Portal.

11 of 21

Verifying Eligibility for Advance Payments

picture of a woman working on a computer at homepicture of a woman working on a computer at home

Question: I think I qualify for monthly payments of the child tax credit, but I want to be sure that I am automatically enrolled in the IRS’s system. Is there a way to check this?

Answer: Yes, you can do this online using the IRS’s Child Tax Credit Update Portal. Once you have gone through all the steps to create an account and log on, you will be able to verify your eligibility for monthly payments and check on the status of those payments.

If the tool says a payment was issued, but you haven’t received it, then you can fill out IRS Form 3911 and send it to the IRS to start a payment trace. You’ll have to wait at least five days from the anticipated direct deposit date and at least four weeks for mailed checks before the IRS can begin a trace on any missing payment.

12 of 21

Updating Bank Account Information

picture of a person looking at their online bank account information on their phonepicture of a person looking at their online bank account information on their phone

Question: I want to make sure that the IRS has my correct bank account information so that my monthly payments can be directly deposited into my account. How do I do that?

Answer: As a general rule, most payments will be directly deposited into bank accounts. Families for which the IRS does not have bank account information could receive paper checks or debit cards in the mail. You can go on the IRS’s Child Tax Credit Update Portal to check whether you are going to get direct deposit payments and the bank account into which such payments will be made. Those who are not enrolled for direct deposit will get paper checks or debit cards unless they update their bank account information.

The tool also allows people to add a bank account for direct deposits (if there is not an account otherwise listed) or change the currently existing one listed on the portal. You will have to enter the bank routing number, account number, and indicate whether the account is a checking account or savings account.

13 of 21

New Babies in 2021

picture of two women with a new babypicture of two women with a new baby

Question: What if I had a baby this year? Will I get advance payments?

Answer: Because the IRS does not know about the baby, you won’t receive payments for the first couple of months. But eventually, you will be able to use the IRS’s Child Tax Credit Update Portal to give the IRS this information. As discussed above, the tool’s features are currently limited to checking whether you are automatically enrolled for advance payments, opting out of the advance payments and updating your bank account information. But when it is fully up and running sometime later this summer or fall, you will be able to go online and update the number of qualifying children to account for your new baby so the IRS will know to begin sending you payments. If you decide not to do this, you’re not out of luck. You won’t get the payments, but you’ll be able to account for your child when you file your 2021 return next year. Provided you are otherwise eligible to take the child credit, you can take a child tax credit of up to $3,600 for your baby on your 2021 Form 1040.

14 of 21

Opting Out of Advance Payments

picture of two block letters spelling "no" on a tablepicture of two block letters spelling "no" on a table

Question: I know I will qualify for a child tax credit for 2021, but I don’t want to receive advance payments. Is there a way of opting out?

Answer: Yes. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return can do so now through the IRS’s Child Tax Credit Update Portal. You will first have to verify your identity before using the tool. If you already have an existing username, you’re set to go. People without an existing account will have to verify their identity with a form of photo identification using ID.me, a trusted third party for the IRS.

There are other reasons people may decide to opt out of the advance payments besides wanting to take the fully refundable child credit in one lump sum on their 2021 tax returns. For example, opting out is recommended for families who claimed the child credit on their 2020 return, but know they will not be able to do so for 2021 because their modified AGI will be too high. A divorced parent who claimed a child as a dependent in 2020, and whose ex-spouse is eligible to claim the child in 2021, should also look into opting out of advance child credit payments.

Note that there are deadlines for opting out if you want to cut off monthly payments before the next one arrives. To opt out before you receive a certain monthly payment, you must unenroll by at least three days before the first Thursday of the month in which that payment is scheduled to arrive. It is now too late to opt out of the July 15 payment, but if you want to opt out of the next five monthly payments, you’ll have to go on the IRS’s Child Tax Credit Update Portal and unenroll no later than August 2. For more details on when to opt out and a full schedule of the opt-out deadlines, see When to Opt-Out of Monthly Child Tax Credit Payments.

15 of 21

Not Required to File Tax Returns

picture of a torn 1040 tax formpicture of a torn 1040 tax form

Question: I do not file tax returns because my income is below the threshold required to file. Will I still qualify for the advance monthly payments?

Answer: Yes, but you’ll have to jump through a few hoops if you didn’t use the IRS’s online tool for non-filers in 2020 to provide information to the tax agency for purposes of qualifying for stimulus payments. That tool was called the “Non-Filers: Enter Payment Info Here” portal.

The easiest way to do this is to use the IRS’s Non-Filer Sign-Up Tool on the agency’s website. If you want your payments directly deposited into your bank account, which is faster than getting a paper check, you can also provide your account information through the tool. If you use the Non-Filer Sign-Up Tool, you’ll be asked to provide personal information such as your name, address, email, date of birth and Social Security number (or other taxpayer identification number). If you want your payments by direct deposit, you’ll also have to give your bank account number, account type and routing number.

The IRS hopes most non-filers will go online and use its Non-Filer Sign-Up Tool. But it also has alternative procedures for people who want to file a simple return. The IRS will accept simple returns on Form 1040 or Form 1040-SR filed electronically or on paper. But you don’t have to fill out the entire return. Instead, you will only need to include your filing status, your identifying information (name, address and Social Security number) and that of your spouse, provide information about your children and dependents, and follow the rest of the IRS’s instructions. Alternatively, if you had no AGI for 2020, you may electronically file a regular Form 1040 or 1040-SR return. For a complete rundown of the IRS instructions for simple returns and zero AGI returns, see Child Tax Credit 2021: How to Get Monthly Payments if You Don’t File Tax Returns.

16 of 21

Social Security Numbers for Children

picture of three Social Security cardspicture of three Social Security cards

Question: My child doesn’t have a social security number. Can I claim the child credit or get advance payments?

Answer: No. The American Rescue Plan didn’t eliminate the requirement that only children with Social Security numbers qualify for the child credit. You must put your child’s name, date of birth and Social Security number on the Form 1040.

Although children must have Social Security numbers, you can have either a Social Security number or an individual taxpayer identification number.

17 of 21

Offset for Back Taxes or Child Support Arrears

picture of man's hand hold a note saying "pay child support"picture of man's hand hold a note saying "pay child support"

Question: Will monthly payments be reduced for taxpayers who owe back taxes or child support?

Answer: No. The IRS cannot take the payments to offset past-due federal taxes, state income taxes, or other federal or state debts. The same goes for people who are behind on child support payments. However, there are no protections against garnishment by private creditors or debt collectors.

Although the advance monthly payments can’t be offset, the same rules don’t apply to a tax refund applicable to the child tax credit taken when you file your return next year. For example, if your actual 2021 child credits exceed the monthly payments you received, the difference may be refundable but can also be offset by back taxes, past-due child support, etc.

18 of 21

Taxation of Advance Payments

picture of three twenty-dollar bills laying on a tax formpicture of three twenty-dollar bills laying on a tax form

Question: Do I have to pay tax on the payments I get?

Answer: No. The payments that you receive are advance payments of the 2021 child tax credit, so they are not taxable. On your 2021 Form 1040 that you file next year, you will reconcile the monthly payments that you receive from the IRS in 2021 with the child tax credit that you are actually entitled to.

19 of 21

Reconciliation of Advance Payments

picture of coins on a balanced scalepicture of coins on a balanced scale

Question: How do I reconcile the advance payments I get with the actual credit I am entitled to?

Answer: When you fill out your 2021 Form 1040 next year, you will compare the total amount of advance child tax credit payments that you received for 2021 with the amount of the actual child tax credit that you can claim on your 2021 return. Don’t worry if you forgot the amount of advance child tax credit payments you got in 2021. The IRS will mail out a notice by January 31, 2022, showing the total amount of payments made to you during 2021. You should keep this letter with your tax records to help you fill out your 2021 return.

If the amount of the credit exceeds the payments you receive, you can claim the excess credit on your 2021 Form 1040. If the credit amount is less than the payments you got, you may or may not have to pay the excess back.

20 of 21

Paying Back Overpayments

picture of one person handing money to another personpicture of one person handing money to another person

Question: Do overpayments of the child credit need to be paid back?

Answer: It depends. With advance payments of the child tax credit, there will sure to be instances in which families receive more in advance child tax credit payments from the IRS than they are otherwise entitled to. And the American Rescue Plan contemplates this by providing a “safe harbor” for lower- and moderate-income taxpayers.

Families with 2021 modified AGIs at or below $40,000 on a single return, $50,000 on a head-of-household return and $60,000 on a joint return won’t have to repay any credit overpayments that they get. On the other hand, families with 2021 modified AGIs of at least $80,000 on a single return, $100,000 on a head-of-household return and $120,000 on a joint return will need to repay the entire amount of any overpayment when they file their 2021 tax return next year. And families with 2021 modified AGIs between these thresholds will need to repay a portion of the overpayment.

21 of 21

Post-2021 Child Tax Credit

picture of numbered blocks on a table arranged to 2022 with last block being changed from a one to a twopicture of numbered blocks on a table arranged to 2022 with last block being changed from a one to a two

Question: Will the higher child tax credit and advance payments eventually be made permanent?

Answer: Yes, if Democratic lawmakers get their way. Remember that the child tax credit expansions apply only for 2021. Congressional Democrats would like to see the enhancements made permanent, touting the impact that a higher and fully refundable child tax credit would have on reducing child poverty in the United States. For example, Congressman Richard Neal (D-MA), the Democratic Chairman of the House Ways & Means Committee, said the 2021 child tax credit enhancements are unlikely to go away, and he has unveiled proposed legislation to permanently extend those expansions. President Biden has also jumped on the child tax credit extension bandwagon. His proposed American Families Plan would extend the expanded credit through 2025, though he would make full refundability, and we assume advance payments, permanent.

If the 2021 child tax credit expansions are not made permanent, or at least temporarily extended past 2021, then the rules that applied for 2020 returns will kick back in beginning in 2022.

Source: kiplinger.com

Who Won’t Get Monthly Child Tax Credit Payments (Not Every Parent is Eligible)

Parents all over the country have been patiently waiting for monthly child tax credit payments ever since they were announced in March. These payments, which can be as high as $300-per-child each month, have the potential to keep millions of American families out of poverty. However, while the wait is almost over for most parents (monthly payments will start on July 15), some people are going to be very disappointed when they don’t receive any money from the IRS.

The monthly payments are really just advance payments of the child tax credit you would otherwise claim on your tax return. You’ll get half the total credit amount in six monthly payments from July to December this year, and then claim the other half when you file your 2021 tax return next year. In most cases, the IRS will determine your eligibility for and the amount of your child tax credit and advance payments based on either your 2020 or 2019 tax return, whichever one was most recently filed. (The IRS also has an online tool that helps you determine if you’re eligible.)

If your family doesn’t receive monthly payments, it could be due to your family income, child’s age, place of residence, or some other disqualifying factor. To help you figure it all out, here’s a list of common reasons why you might not get monthly child tax credit payments from the IRS. Hopefully, you get a payment on July 15 if you’re expecting one, especially if you’re one of the millions of Americans still struggling financially because of the pandemic. But if you don’t, it’s easier to plan your next move if you know why you were left out.

(For complete coverage of the 2021 child tax credit, including more information about the monthly advance payments, see Child Tax Credit 2021: Who Gets $3,600? Will I Get Monthly Payments? And Other FAQs.)

1 of 9

Your Child is Too Old

picture of birthday cake for 18 year oldpicture of birthday cake for 18 year old

To qualify for the 2021 child tax credit – and, therefore, for the monthly payments – your child must be 17 years old or younger at the end of the year. That’s actually one year older than what was permitted in previous years. So, if your kid turns 17 in 2021, you get to claim the child tax credit for him or her one more time. But if your child is 18 or older at the end of this year, you can’t claim the credit or receive monthly payments for him or her.

You may not be completely out of luck if you have a dependent child who is over the age limit, though. While you’re not eligible for the child tax credit or advance payments, you may be able to snag an extra $500 when you file your 2021 tax return next year by claiming the credit for “other dependents.” This alternative credit may even be available if your kid is in college.

2 of 9

Your Child Was Born in 2021

picture of a mother kissing her sleeping babypicture of a mother kissing her sleeping baby

Assuming you’re otherwise eligible, you can claim the 2021 child tax credit if you have a baby this year. However, you still might not get monthly advance payments for the child because the IRS doesn’t know about your new bundle of joy. The tax agency is looking at previous tax returns to see who is eligible for monthly payments. If they don’t see a child on your 2020 or 2019 return, whichever was filed most recently, they’re not going to send you monthly payments.

The good news is that the IRS will have a solution for this problem later in the summer when it updates the Child Tax Credit Update Portal to allow you to add qualifying children you will claim on your 2021 tax return. Once the IRS is aware of your new son or daughter, it can adjust your estimated 2021 child tax credit and then adjust the amount of your monthly payments.

If you don’t use the IRS portal later this year to add your child, you can still claim the full amount of your allowable child tax credit for that child when you file your 2021 tax return next year. So, you won’t lose any money…but you’ll have to wait to get it.

3 of 9

Your Income is Too High

picture of a rich guy getting out of a limo in front of a private jetpicture of a rich guy getting out of a limo in front of a private jet

For 2021, the child tax credit is worth $3,000-per-child for children ages 6 to 17 and $3,600-per-child for kids who are 5 years old or younger. That translates to maximum monthly payments of $250-per-child or $300-per-child, respectively.

However, the child tax credit is phased-out for people at certain income levels (based on your 2020 or 2019 tax return). If your total credit is reduced, so will your monthly payments. If your income is high enough, your credit and monthly payments will be completely phased out and you’ll get nothing!

There’s a complicated system under which your credit and payments can be phased-out in two different ways. Without going into too much detail, you’re at risk of an initial reduction if the modified adjusted gross income (AGI) on your most recent tax return is above $75,000 for single filers, $112,500 for head-of-household filers, and $150,000 for married couples filing a joint return. During this step, your total credit can’t be reduced below $2,000-per-child, which means your monthly payment won’t be less than $167-per-child. The second phase-out can totally wipe out your credit and monthly payment if your modified AGI exceeds $400,000 on a joint return or $200,000 on other returns. (Use our 2021 Child Tax Credit Calculator to see how your income can impact your credit and advance payments.)

If your income changes in 2021, you’ll be able to let the IRS know later this summer using the Child Tax Credit Update Portal. If this year’s income is lower than in 2020 (or 2019), then your monthly payments may increase after using the online portal. If your 2021 income increases, make sure to let the IRS know that, too. You don’t want to receive more in monthly payments than what you’re entitled to, because you then risk having to pay it back next year when you file your 2021 tax return.

4 of 9

You Haven’t Filed a Recent Tax Return

picture of a crumpled up tax formpicture of a crumpled up tax form

As mentioned above, the IRS will base monthly payment amounts on your 2020 or 2019 tax return in most cases. But not everyone is required to file a tax return. So, if you haven’t filed a recent return, will you still get monthly child tax credit payments?

It depends. If you used the IRS’s “Non-Filers: Enter Payment Info Here” portal last year to claim a first-round stimulus check, your monthly payments will be based on the information you provided through the tool. However, if you didn’t use the non-filers tool last year and you want to receive monthly payments, you need to use the new Child Tax Credit Non-Filer Sign-Up Tool, file a “simplified” return or zero AGI return using the IRS’s special procedures, or file a normal 2020 tax return. If you don’t act now, you won’t receive any advance child tax credit payments. (For more information, see How to Get Child Tax Credit Payments if You Don’t File a Tax Return.)

5 of 9

You or Your Child Don’t Have a Social Security Number

picture of a Social Security cardpicture of a Social Security card

Many changes were made to the child tax credit for the 2021 tax year. The credit amount was increased, it’s fully refundable, 17-year-old children qualify, and, of course, advance payments were authorized. But there are other requirements from previous years that weren’t changed. For instance, you still can’t claim the child tax credit, or get monthly payments, for a kid who doesn’t have a Social Security number.

Your child’s Social Security number must also be “valid for employment” in the U.S. and issued by the Social Security Administration (SSA) before the due date of your 2021 tax return (including extensions). If your child was a U.S. citizen when he or she received the Social Security number, then it’s valid for employment in the U.S. If “Not Valid for Employment” is printed on the child’s Social Security card and his or her immigration status has changed so that of a U.S. citizen or permanent resident, ask the SSA for a new Social Security card. If “Valid for Work Only With DHS Authorization” is printed on the card, your child has the required Social Security number only as long as the Department of Homeland Security authorization is valid.

You, and your spouse if you’re married, must also have a Social Security number or an Individual Taxpayer Identification Number (ITIN) to claim the child tax credit and receive advance payments. In addition, you’ll only receive monthly payments only if you used your correct Social Security number or ITIN when you filed your 2020 or 2019 tax return or entered information into the IRS’s non-filer tool in 2020 to receive a first-round stimulus check.

6 of 9

Your Child is a Nonresident Alien

picture of a person holding a green cardpicture of a person holding a green card

Your child must be either a U.S. citizen, U.S. national, or U.S. resident alien for you to claim the child tax credit or receive monthly advance payments. There is one exception: If you’re a U.S. citizen or U.S. national and your adopted child lived with you all year as a member of your household, the child is considered a U.S. citizen for child tax credit purposes.

Generally, a “resident alien” either has a green card or is physically present in the U.S. for a certain amount of time. A “U.S. national” is someone individual who, although not a U.S. citizen, owes his or her allegiance to the United States. American Samoans and Northern Mariana Islanders can also choose to be a U.S. national instead of a U.S. citizen.

See IRS Publication 519 for more information on the taxes for U.S. nationals and resident aliens.

7 of 9

Your Ex-Spouse Claimed Your Child as a Dependent Last Year

picture of a cut-out family on paper that is torn in halfpicture of a cut-out family on paper that is torn in half

If the IRS looks at your ex-spouses 2020 tax return and sees that he or she claimed your child as a dependent on that return, your ex is going to get the monthly child tax credit payments starting July 15 – even if you will claim the child as a dependent for 2021. You’ll be able to correct this when the IRS updates its Child Tax Credit Update Portal later this summer, but until then you won’t see any advance payments. Once you revise your information in the portal, the IRS will adjust your estimated 2021 child tax credit and start sending you monthly payments.

If the tables are turned and you’re receiving monthly payments even though your ex-spouse will claim your child as a dependent for the 2021 tax year, you should consider using the portal now to opt-out of the payments. That will reduce the risk of having to repay any advance child tax credit payments when you file your 2021 tax return next year.

8 of 9

You Live Outside the U.S.

picture of a family in Paris near the Eiffel Towerpicture of a family in Paris near the Eiffel Tower

To receive monthly child tax credit payments, you (or your spouse if you’re filing a joint return) must have your main home in the U.S. for more than half of 2021 or be a bona fide resident of Puerto Rico for the year. Your main home can be any location where you regularly live, as long as it’s in one of the 50 states or the District of Columbia. Your main home can be a house, apartment, mobile home, shelter, temporary lodging, or other location. It doesn’t have to be the same physical location throughout the year, either.

You also don’t need a permanent address to get monthly payments. If you’re away from home temporarily because of illness, education, business, vacation, or military service, you’re still generally considered to be living in your main home for child tax credit purposes.

9 of 9

You Can Be Claimed as a Dependent

picture of a tax form showing space to list dependentspicture of a tax form showing space to list dependents

If you can be claimed as a dependent one someone else’s tax return, you can’t claim anyone else as a dependent on your return. If you’re filing a joint return and your spouse can be claimed as a dependent by another person, you and your spouse can’t claim any dependents on your joint return.

If you can’t claim your child as a dependent because of this rule, you can’t claim the child tax credit for him or her. If you can’t claim the child tax credit, you’re not eligible for advance payments of the credit. So, if you can be claimed as a dependent on another person’s tax return, then you won’t receive monthly payments.

This is one of the rules for 2021 that was carried over from previous years.

Source: kiplinger.com

Do You Get $300/Month Child Tax Credits if You Owe Child Support?

If you’re the parent who provides more than half of the child’s support, you’ll receive the credits, not your ex. However, if your ex qualifies for 0 or 0 a month because they have other children, they’ll still receive that money even if they owe you child support.
The half of the credit that’s payable as a refund can still be offset if you owe the federal government money.

Will the IRS Offset Advanced Child Credits if I Owe Child Support?

But what about the advance child tax credits of 0 a month for parents of children younger than 6 and 0 a month for kids ages 6 to 17? Here’s what you need to know, whether you’re a parent who owes child support or your child’s other parent is delinquent.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]
The parent who can claim a child as a dependent on their tax returns, meaning they provide more than half of their support, is the parent who will receive the child credits. So it’s unlikely that you’d qualify for the credit on behalf of any child you’re behind on support payments for.
The first advance child credits are scheduled for July 15. They’ll continue on a monthly basis through December.
Ready to stop worrying about money?

Can I Get My Ex’s Child Credits if They Owe Me Child Support?

If you usually receive their tax refund through the Treasury Offset Program, you may receive the other half of their child tax credits with the rest of their refund next year.
Since the advance credits won’t be garnished for child support, your monthly payments shouldn’t be affected. However, if you and your spouse file a joint return, you should file an injured spouse claim using Form 8379 when you submit your 2021 return. Doing so protects your half of the remaining credit from being offset.

What if My Spouse Owes Child Support?

When you’re delinquent on child support, your tax refund is typically intercepted and sent to the appropriate child support agency through the Treasury Offset Program. The same rules applied to the first round of stimulus checks in 2020.

Can the Credits Be Garnished for Other Debt?

The advance part of the credit can’t be offset for money you owe the federal government. If you owe back taxes, your monthly payments won’t be reduced.
The other half of the credit, along with the rest of your refund, can be seized to offset child support as usual next year at tax time.
But if you have other children who qualify as your dependents and you’re otherwise eligible, you’ll still get the advance 0 monthly child tax credits, even if you’re behind on child support. The IRS won’t offset the advance payments for any reason, including child support debt.

When Will the Child Credits Arrive?

Source: thepennyhoarder.com
Get the Penny Hoarder Daily <!–

–>




Privacy Policy