Starting from July 15, 2021, and for the next 6 months, some families with child(ren) will receive monthly cash as an advanced child tax credit so that you can start spending it. Some people are either confused about what’s going on or are worried that taking the credit now will hurt them later in the year when they pay their taxes. Here’s a breakdown (assuming one child):
2020 Child Tax Credit: $2,000 per qualifying dependent child under age 17
2020 Max Child Dependent Care Tax Credit: $1,050
2020 Total Credit: $3,050
2021 Child Tax Credit: up to $3,600 ($1,800 advanced to you for the next 6 months) per qualifying dependent child (depends on the child’s age)
2021 Max Child Dependent Care Tax Credit: $4,000
2021 Total: up to $7,600 (depends on the child's age)
Income restriction: The IRS estimates your 2021 income by your 2020 (or 2019) tax return, so if you know your 2021 income will significantly increase and breach the top ceiling, you might want to opt-out of the advanced credit check. Otherwise, after you file for the 2021 tax return, the IRS will take the money back from you.
For more information on the credit’s differences due to the child's age and your income level, please go to the IRS website: https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-c-calculation-of-the-2021-child-tax-credit
DISCLAIMER: We are not CPAs; above is just a breakdown of the numbers. As for what’s the best practice for each individual and/or household, please contact your CPA or IRS for further advice.
