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With 39 million U.S. families slated to benefit from the expanded child tax credit, millions of parents are waiting for information on how they can ensure they receive the credits once the IRS starts sending checks on July 15th. In addition to sending the checks, the IRS says it unveil a pair of portals for taxpayers before July 1 to be used for credit.
The IRS is developing a portal that will allow parents to choose whether they want the monthly cash payments they’re entitled to, or if they just want to receive the full tax credit in 2021. You can also update your information personal information for qualifying life events, such as the birth of a child or marriage, that could change your income levels or other qualifying markers.
While details on how the portals work have not been released – especially for those that don’t file annual fees – parents can always prepare in advance for how they want to approach credits. There are a handful of things to consider before the portals go live and a decision on how to receive the money is made.
Who qualifies?
The credit was extended when the American Rescue Plan was enacted in March and went from $ 2,000 per child to $ 3,000 for each child aged 6 to 17, and to $ 3,600 for children under 6 years.
Income thresholds based on your tax returns determine whether you qualify for the extended credit and how much you can receive, but there is no limit to the number of children you can receive as long as you are eligible for the credit.
The IRS uses your 2019 or 2020 tax returns to determine your qualifying status. If you’ve already submitted your 2020 tax return, you don’t need to do anything else as the IRS will review it and determine your eligibility. If you haven’t filed for 2020, your 2019 returns will be used, but you can request an adjustment (more details below).
For a single person, their adjusted gross income cannot exceed $ 75,000 per year in order to receive full credit. Heads of household can earn up to $ 112,500 while receiving full credit. Anyone earning more than this will not be eligible for the larger credit.
Married couples, those filing jointly, or eligible widows or widowers will receive the full benefit if the combined adjusted gross income is less than $ 150,000. The adjusted gross earnings above will have their credit reduced by $ 50 for every $ 1,000 above the threshold.
For single filers with income of $ 200,000 or less and joint filers with income of $ 400,000 or less, you can still claim the previous child tax credit of $ 2,000 per child.
Changes in your qualification status
Again, the final details were not disclosed, but the IRS has confirmed that parents will be able to submit qualifying income changes to the department in order to receive more benefits. These can include changes in income status, the birth of a new child, reporting status (such as getting married) and more.
These changes could dramatically change the amount of money you receive for credit or whether you are now eligible for credit. Especially if you haven’t yet declared your 2020 taxes and your income has changed from 2019 to 2020.
The IRS should publish more information on how to submit these changes once the portals are open.
How do you want to receive the credit?
Once your eligibility is known, you’ll want to think about how you want to receive the credit. Before the credit expansion, parents would receive the money in the form of a credit on their taxes. With the new rules in place, you can choose to receive half of the credit in the form of six monthly installments that will be sent directly to you from July 15 until the end of the year.
For example, an eligible family of five with three children aged 6 to 17 would receive $ 750 per month for a total of $ 4,500 in payments. The remaining $ 4,500 would then be applied as a credit on the family’s 2021 income tax return.
However, if this family prefers to receive the full extended credit in their 2021 tax return, they will be able to make this choice through the portal. The IRS would then credit the family with $ 9,000 on next year’s returns and they would not receive a monthly payment.
The IRS has not said whether parents will be able to make a monthly choice about how they wish to receive the money, so you may want to consider the impact of both options on your finances for the rest of the year. the year before you make your choice.
Checks should be sent on the 15th of each month, unless the 15th falls on a statutory holiday.
Could the expansion extend beyond this year?
While the credit extension is currently only scheduled for this year, President Joe Biden has offered to extend the extension until 2025 as part of his draft U.S. plan for families. Many elected officials have shown their support for the plan, but some say it is not enough and have introduced legislation that would make the expansion permanent, according to CNBC.
