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What You Need to Know About the Child Tax Credit

What You Need to Know About the Child Tax Credit
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What You Need to Know About the Child Tax Credit

What You Need to Know About the Child Tax Credit

(People with low incomes – less than $ 40,000 per year for unmarried taxpayers and $ 60,000 for married couples – will generally not have to repay advance payments if they do not qualify in 2021 due to a change in the number of eligible children, according to a report by the Congressional Research Service.)

In addition, some families prefer to receive a large refund when they file their tax returns in the form of some sort of forced savings plan, said Joanna Ain, associate director of policy at Prosperity Now, a non-profit organization. profit 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 fear spending the money if it is distributed in smaller amounts, rather than arriving as a lump sum that can help cover expensive items like major appliances, heating systems, or home repairs. car.

Divorced couples with joint custody of children may face a different problem. They often take the child tax credit on a work-study basis: one spouse claims it one year, the other the following year, and so on, DuFault said. But the IRS will likely send the prepayments to the spouse who applied for the credit in 2020 – and then will have to pay it back at tax time next year or get a smaller refund.

To avoid this, the spouse who is not supposed to get the credit can opt out of the prepayment. The “good” spouse may not receive advance payments, but may claim the full amount of the credit on the tax return next year, said Jeffrey Wood, chartered accountant and partner of Lift Financial in South Jordan, Utah. .

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For more details on credit, the IRS has compiled a list of frequently asked questions. The White House also has a dedicated tax credit website, with examples of credits 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 less than $ 75,000 for single tax filers, $ 150,000 for married couples filing a joint tax return, and $ 112,500 for “head of household” filers – usually single parents. unmarried. The credit begins to decline above these thresholds and drops to zero for higher incomes ($ 240,000 for single taxpayers and $ 440,000 for married couples, according to examples from the Congressional Research Service).

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