Lucas Casarez
For families with children, here’s the biggest news out of the stimulus package. Most people fully expected the additional $1,400 for a stimulus check, but a TEMPORARY increase in the child tax credit was a welcomed surprise to families.
Not only is it possible you may be seeing additional tax credits for your child, but you may begin receiving advanced payment of your child tax credit in the form of a monthly check!
Children dependents age 17 and under (normally 16 and under, but this is a special increase for 2021) are eligible for the child tax credit. The maximum child credit increased to $3,000 with an enhanced maximum credit to a max of $3,600 for a qualified child under the age of 6.
Like many aspects of the stimulus and tax credits in general, there are income phaseouts to be aware of. There are two different phaseouts.
Phaseout for first $2,000 of the child tax credit:
- Single $200,000
- Married Filing Jointly $400,000
Phaseout for the special increase in the child tax credit in 2021 at a rate of $50 reduction per $1,000 above the following amounts:
- Single $75,000
- Head of household $112,500
- Married Filing Jointly $150,000
Using the most recent tax return on file, the IRS will estimate your child’s tax credit and begin paying 50% of the total credit to be prorated over the 6-month period from July to December. The remaining 50% will be credited to your 2021 tax return.
One big difference between stimulus payments and this new advanced child tax credit is that if the IRS’s estimate of your credit is off from what you are actually entitled to, you may have to pay back the credit when you file your 2021 tax return. This is called “a clawback.”
This clawback could occur if your income has increased beyond the income phaseouts for your 2021 tax year.
A clawback could also apply to separated parents who take turns claiming a child for tax purposes in alternate years. For lower-income filers, there is a slight reprieve that allows you to keep up to $2,000 of overpayments per child.
Those income limits are:
- Individual $40,000- $80,000
- Head of household $50,000- $100,000
- Married Filing Joint $60,000- $120,000
With this new temporary child tax credit increase and monthly payment, families will have additional resources to repair, catch up, or continue building a stronger financial future.
Lucas Casarez is a husband, father of three amazing kids, and a Certified Financial Planner™. He founded Level Up Financial Planning, one of the few fee-only financial planners in Northern Colorado. The mission of Level Up Financial Planning is to guide his clients in taking their financial confidence to the next level.
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Lucas Casarez (he, him)
Certified Financial Planner®
970-222-6783