Over 35 million households in the U.S are getting monthly payments for their 2021 child tax credits. What many do not realize, they could end up owing the IRS next year.
How Much Can You Expect For This Year’s Child Tax Credit & What Is the IRS Sending?
The maximum child tax credit for 2021 is $3,600 for every child under 6 years of age and $3,000 for every child between 6 and 17 as of Dec. 31, 2021.
Without the expansion, the payment would be $2,000 for each child 16 years or younger.
The IRS is sending out half of a family’s total credits in 6 month installments as. Therefore, an eligible family with three children ranging from 6 to 14 will get up to $9,000 in child tax credits for 2021,3
and $4,500 of that amount will be sent in 6 monthly installments over the rest of the year.
The IRS has sent letters out to eligible families regarding their prepayments. The prepayments are based on a family’s latest tax return which is normally 2020 or in other cases, 2019. If a family’s 2021 income is different, the prepayment could be too high or too low.
If parents do not receive a monthly payment, they can claim the full child credits they qualified for on their 2021 returns.
Are there 2021 child credit income limits?
Yes, but it’s confusing. A portion of the credit that is just for 2021, which is either $1,600 or $1,000 per child will start to phase out at $75,000 for single filers and $150,000 for married couples. Above these limits, the taxpayer will lose $50 of total credits for every $1,000 of additional income. The cap will vary according to the income, the number of children, and filing status.
As an example: According to an IRS spokesperson, if a couple files jointly and has $200,000 of income and three children ages 6, 10, and 14, the phaseout will cost them $2,500 or $3,000 in child credits that apply only to 2021.
That said, the couple would still get a permanent credit of $2,000 for each child because the phaseout starts at $400,000 for each married couple and $200,000 for most single filers. That means, a family’s total child tax credit for 2021 would come to $6,500 and they should receive monthly payments of approximately $540 for the rest of the year.
One major change from prior years, filers do not need to have earned income to claim child credits in 2021.
If a family receives prepayments they are not eligible for, do they have to return it?
In most cases yes either through a lower refund or a higher balance due to the IRS. Taxpayers who are receiving prepayments this year can settle up with the IRS on their 2021 tax returns.
Filers who are not qualified for some or all the prepayments say their income rose or an ex-spouse is claiming the child for 2021 and could owe the IRS for them unless their income is below $40,000 for single filers or $60,000 for couples filing jointly.