Valued GBE Clients,
IRS letters will arrive
The IRS announced it has started sending letters to more than 36 million American families who may be eligible for the expanded child tax credit and monthly payments set to begin in July.
Income limitations
Phaseout of the new enhanced credit begins at $75,000 single and $150,000 married filing joint.
Please Note: Incomes above this level will retain the previous $2,000 child tax credit for children under age 17; if the household makes less than $200,000 single and $400,000 married filing joint.
What it is
The maximum enhanced credit, which was established by the American Rescue Plan in March, is $3,600 for children younger than age 6 and $3,000 for those between 6 and 17 for 2021.
The payment plan
Half of the money will be sent to most families in monthly installments beginning July 15 and going through December – the payments are $300 per month for children younger than 6 and $250 per month for those aged 6 to 17. This represents a pre-payment of the annual tax credit which you normally receive upon filing your federal taxes. Families will get the remainder when they file their 2021 taxes next year.
Opt-out
The IRS will provide options to opt-out of the payment plan. Information on opting-out was not available at the time of this notification.
If you are eligible and do nothing, you are generally automatically enrolled in the payment plan.
How will it affect my taxes
In general you can expect the following outcomes:
Do nothing approach
Example A: Receive payment plan for each child younger than age six – federal refund will be approximately $200 less than last year for each child under age six.
Example B: Receive payment plan for each child age six to seventeen – federal refund will be approximately $500 less than last year for each child age six to seventeen.
Opt-out approach
Example C: Opt-out of payment plan for each child younger than age six – federal refund will be approximately $1,600 more than last year for each child under age six.
Example D: Opt-out of payment plan for each child age six to seventeen – federal refund will be approximately $1,000 more than last year for each child age six to seventeen.
IMPORTANT NOTE
The money you receive is the SAME in ALL examples. The pre-payment is a front-load receipt of the credit. Opting-out simply means waiting until tax filing to receive it all. YOUR TOTAL FINANCIAL OUTCOME IS THE SAME AMOUNT IN ANY EXAMPLE.
Tax time
Your GBE tax advisor will need to know if you received the pre-payment or if you opted out. Please be prepared to inform us during your tax filing which option you considered.
Child tax credit: IRS sending letters to 36 million eligible families (cnbc.com)
New monthly child tax credit payments start July 15. What to know (cnbc.com)