June 25, 2021
The financial and economic conditions created for Atlanta families, individuals, and businesses, by the COVID-19 pandemic have been very challenging. For many businesses, initial stay-at-home and forced business closures meant a steep drop in revenue almost overnight. Faced with this reality, difficult decisions about employee furloughs and terminations were made. The result was a sharp increase in unemployment. To combat the potential of depression, several pieces of relief legislation were passed in 2020 including the CARES Act and Consolidated Appropriations Act, 2021. While helpful the Biden Administration believed more targeted relief was necessary. The American Rescue Plan (ARP), passed in March, included relief programs to help struggling families. One of the biggest changes was to the Child Tax Credit (CTC). The credit amount was increased from $2,000 to $3,000 per child and to $3,600 for children under six. In addition, there was the introduction of advance payments for qualifying taxpayers. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
As mentioned above, the credit was increased to $3,000 per qualifying child and $3,600 for qualifying children under six. In addition, the age limit was increased from 16 to 17 years old, and the credit is now fully refundable. The credit phases out when a taxpayer’s modified adjusted gross income (AGI) exceeds $75,000 for individuals, $112,500 for heads of households, and $150,000 for married couples filing jointly. In cases where taxpayers exceed income limits, they can still claim the credit but at the pre-ARP rate of $2,000 per qualifying child.
The advance credit payments will be made from July through December to eligible taxpayers. The total payment amount is limited to 50% based on estimates made from the 2020 federal income tax return. For this reason, it is important for those who have not filed a 2020 return to do so as quickly as possible. Without this information, the IRS will not be able to make the needed estimates and payments will be delayed. Those who have filed a 2020 return do not need to take any action at this time.
In addition, the IRS has created a Child Tax Credit Update portal where taxpayers can check eligibility and unenroll from automatic advance payments. It is important to note the total credit for 2021 will be reduced by advance payments. In the unlikely event, payments received exceed the permitted amount, then the excess amount will be added to tax liability and need to be repaid.
Each month, taxpayers will receive up to $300 for each child under 5 years old and up to $250 for those between 6 to 17 years old. For those with children 18 years old it is possible to qualify for a $500 credit. Finally, dependents between 19-24 years old may also qualify, but they must be enrolled in college full time.
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The changes to the Child Tax Credit mean additional tax savings for Atlanta families. The advance payment feature provides a cash infusion many need during this time. If you have questions about the information outlined above or need assistance with estimating and claiming the credit, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.