If you have declared children as dependents when you filed your taxes, you are in for some good news. As part of the federal government’s rescue plan amidst the COVID-19 pandemic, tax credits are being doled out.
According to the Internal Revenue Service, child tax credits are meant to benefit lower-income households belonging to certain income brackets. The tax credits for 2021 are at least $1,000 higher than what they were in 2019 and 2020.
In short, you can benefit from a corresponding tax deduction for each child listed as your dependent. However, the tax credits can vary from one person to another.
Do you want to learn more? Here are the three considerations that can affect how you receive the monthly child tax credit payments.
As per the provisions of the American Rescue Act of 2020 and 2021, the child tax credit is for lower-income families. The tax credit was raised by as much as $1,000 for single and joint taxpayers to help families hit hard during the COVID-19 pandemic.
Due to the Rescue Act’s purpose, a major consideration when it comes to the child tax credit is income. According to the IRS, individuals and families who made a yearly income of $75,000 and $150,000 respectively are eligible.
The child tax credit defaults back to 2019’s $2,000 figure for individuals who earn more than $95,000 per year. For joint filers, the ceiling stands at $170,000 per year.
Your eligibility in regard to meeting the income requirements depends on your filing information. In particular, the IRS will base your eligibility on your tax filing information from 2019 and 2020. So, if you declare children under the age of 18 and that you earned under the income ceiling, monthly payments will go to you.
The child tax credits can change for you if your situation changes. For example, if you suddenly landed a job that will pay you more than $100,000 in 2021, you can lose eligibility for tax credits. Also, losing custody of your child results in you losing eligibility.
Any change in your situation needs to be present the next time you file your taxes in 2021.
Failing to report changes to your financial situation or dependents can result in you owing the IRS for the tax breaks given to you. Hence, you need to report changes at the right time.
The best way to report and act on changes is to do so at various times of the year instead of doing it all at once. Since tax season already began last February 2021, you will have to start notifying the following beginning in June:
- Your bank
- The IRS
The American Rescue Act has set in motion several financial safety nets for low-income Americans. One of these is the child tax credit. Receiving monthly payments can help you make ends meet during these trying times.
Nonetheless, the provision and eligibility for the tax credit are not without their caveats. If you have questions or need advice, reach out now to our financial advisors in Illinois, Hagemann Wealth Management.
The opinions voiced and content in this material are for general information only and are not intended to provide specific tax advice or recommendations for any individual. The opinions expressed in this material do not necessarily reflect the views of LPL Financial. LPL Financial does not provide tax advice.