More money is on the way to millions of American families with children. Here is the basic information you should know about it.
The Child Tax credit is not new this year. It was introduced in 1998 to give families with children a payment of $400 for each child. Over the years that number grew, and a year ago the amount had risen to $2,000. And it was only partially refundable against taxes paid.
The big news is that for 2021, as part of the American Recovery Act, that credit was boosted to $3600 for each dependent child under the age of 6 at yearend, and $3000 for every dependent child under age 17 at yearend 2021.
And that amount is totally refundable to the filer – meaning you don’t have to pay ANY taxes to qualify for the credit!
The other big news is that instead of waiting until you file your 2021 tax return next year, the government is going to start sending out the credit in advance — in the form of monthly payments beginning on July 15th. That will put a surge of money into the hands of families who qualify.
The credit goes only to those who have parental income under $75,000 on a single return, or $150,000 on a joint return, (or $112,500 for those filing as head of household). Above those income levels the credit phases out. For example, joint returns with income over $150,000 to $400,000 receive a $2,00 credit. There is no credit for joint incomes over $400,000.
This is a credit that is not limited by the number of children claimed as dependents on a qualifying tax return.
Must File a Tax Return
Unlike stimulus payments which were issued by the IRS as refundable credits to many who never file a return – seniors on Social Security, low income people on SSDI, for example – YOU MUST FILE A TAX RETURN TO GET THIS REFUNDABLE CREDIT.
That means many low income people who are not required to file a return, but have qualifying dependent children, should go to www.IRS.gov/freefile to get linked up with a free service offered by major firms such as TurboTax that will help them file a return and claim the credit.
Yes, the 2021 tax deadline passed on May 17th, but there is no “late filing penalty” – because you weren’t required to file in the first place! The IRS says it may set up a portal later where low-income people can register for the credit – but if you want to get your first check starting July 15th, the smart move is to file a tax return now. And be sure to put in your bank direct deposit information.
Getting the Money
You don’t have to do anything else but file your tax return for 2020. (The IRS may start by looking at 2019 returns if they don’t see the 2020 return. Many people earned more before Covid and might not qualify based on 2019 returns, so get yours in now!
The IRS says the vast majority of recipients will get the monthly check by direct deposit, since so many people file electronically and include their banking information to get refunds. Others with no info on file will get paper checks or cards.
If you don’t have a bank account – and many lower-income people don’t – this is the time to open one! Just one visit to a bank, and a deposit of $100, will be enough to open a free or very low-fee account — IF you tell them you will be receiving a monthly deposit from the government!
They’ll also give you a debit card so you can withdraw cash from any ATM – or use it as a credit card to shop online. That avoids the expensive fees charged by check cashing services!
Problems for ex-Spouses
Sadly, in many cases of divorce, the wealthier spouse is given the right to “claim” the child for taxes, because a he or she has a higher income. They might split custody 50/50, but the tax dependency is given to the high-income spouse.
An ex who is only receiving child support and alimony maintenance does not have to claim that money as income (if the divorce was after 2019). That means the poorer spouse who could really use this big check will not get it. And the wealthier spouse earns too much to claim it!
If you can get your ex to reverse this situation and let you claim your child as a dependent for tax purposes, you will get not only the $3600 or #3,000 per child – but also get an additional $3,000 Earned Income Tax Credit. It adds up to a LOT of money. To make the dependency changeover, you need to use IRS Form 8332.
Finally, this was a one-year enlargement of the Child Tax Credit. But looking at past history of ever-increasing payments, it’s likely to stay with us in the future. It’s quite an incentive to have children (!), and maybe that will help with our aging demographics. That’s the Savage Truth.