What You Need to Know About the Child Tax Credit

by Msnbctv news staff

(People with low incomes — under $40,000 a year for unmarried taxpayers and $60,000 for married couples — generally won’t have to repay advance payments if they are ineligible in 2021 because of a change in the number of qualifying children, according to a report from the Congressional Research Service.)

Also, some families prefer to receive a large refund when they file their tax returns as a sort of forced savings plan, said Joanna Ain, associate director of policy with Prosperity Now, a nonprofit organization that promotes financial security for low-income people.

“Their tax refund is the only time they see that kind of money,” she said. They may worry that they will spend the cash if it is doled out in smaller amounts, rather than arriving as a lump sum that can help cover pricey items like major appliances, heating systems or car repairs.

Divorced couples with joint custody of children may face a different issue. They often take the child tax credit in alternating years: One spouse claims it one year, the other the next, and so on, Mr. DuFault said. But the I.R.S. will probably send the advance payments to the spouse who claimed the credit in 2020 — and who then may have to repay it at tax time next year or get a smaller refund.

To avoid that, the spouse who isn’t supposed to get the credit can opt out of the prepayment. The “correct” spouse may not get advance payments but can claim the full amount of the credit on the tax return next year, said Jeffrey Wood, a certified public accountant and partner at Lift Financial in South Jordan, Utah.

For more details about the credit, the I.R.S. has compiled a list of frequently asked questions. The White House also has a website dedicated to the tax credit, with examples of the credits that families can expect based on their income and family size.

Here are some questions and answers about the 2021 child tax credit:

You can get the full credit if your income is under $75,000 for single filers, $150,000 for married couples filing a joint tax return and $112,500 for “head of household” filers — typically, unmarried single parents. The credit begins to shrink above those thresholds, and drops to zero at higher incomes ($240,000 for unmarried taxpayers and $440,000 for married couples, according to examples from the Congressional Research Service).

Source link

You may also like