The federal government has upgraded its Child Tax Credit. Thanks to the American Rescue Plan Act, there are four notable differences in effect for the 2021 tax year only.1
First, the Internal Revenue Service is paying many families who qualify for the CTC 50% of their credit before 2021 ends. Second, the credit has grown larger for most eligible families: $3,000 per child, $3,600 per child under age 6. Third, this year’s CTC is fully refundable. Fourth, the credit has been extended to 17-year-olds for the first time – that is, children who turn 17 in 2021.1,2
Remember, this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your tax or legal professionals if you have any questions about the CTC or how it operates.
All this comes with a caveat. Some families may end up getting a bigger CTC than they should, and they may have to pay some of it back. Certain households may see their adjusted gross incomes (AGIs) rise for 2021, to the point where they may be eligible for less of the CTC than the I.R.S. has paid out to them.2
CTC payments are going out in monthly increments through December. Eligible families are receiving $250 a month for each child aged 6-17 and $300 a month for each child under age 6. A small number of CTC recipients are opting for a lump-sum payment that the I.R.S. will send them in 2022, after they file their 2021 federal tax returns.2
High-income families might get less. Phase-outs apply for this year’s expanded per-child credits of $3,000/$3,600. As a result, affluent households might only receive the standard $2,000-per-child credit in six monthly increments rather than the enlarged one.2
Phase-outs will kick in for single filers with modified adjusted gross income (MAGI) greater than $75,000, heads of household with MAGI greater than $112,500 and joint filers and widows/widowers with MAGI greater than $150,000. For each $1,000 (or fraction thereof) that the taxpayer’s MAGI exceeds the applicable threshold, the taxpayer’s CTC is reduced by $50.3
Some divorced parents have opted for the lump-sum payment in 2022. Here, the risk of taking the monthly payments is that if one parent claimed a child in 2020 but doesn’t in 2021, they may get CTC credits in 2021 that they have to pay back in 2022.2
Keep in mind that tax rules are constantly changing, and there is no guarantee that any of these CTC changes will be carried over into future tax years. If you have any questions, please reach out. We may have some resources that can help answer some of your questions.
If you ever have any questions about your investments or retirement plans, please feel free to give me a call at 801-545-0696.
Regards,
Mark Lund
Stonecreek Wealth Advisors, Inc.
11650 S. State Street, Suite 360
Draper, UT 84020
Citations.
1. Kiplinger.com, July 14, 2021
2. CNBC, June 30, 2021
3. Internal Revenue Service, July 30, 2021
This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary, Inc., for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, Financial Advisor, Financial Planner, Investment Advisor and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. a fiduciary, independent, fee-only, Registered Investment Advisor firm providing investment and retirement planning for individuals and 401k consulting for small businesses. Mark’s newsletter is called The Fiduciary Report. Cities served in Utah are: Salt Lake County, Utah County, Park City, Salt Lake City, Murray, West Jordan, Sandy, Draper, South Jordan, Provo, Orem, Lehi, Highland, Alpine, American Fork.
