Hello everyone, this is Ashley Graban, Director of Client Services, and I have grabbed hold of Michael’s blog to share a conversation he and I had about the Advance Child Tax Credit Payment.
There has been enormous news recently about the Advance Child Tax Credit Payment and lots of questions. I believe that this conversation that we had might clear up some of your questions and concerns.
Ashley – I have been reading a lot about the Advance Child Tax Credit Payment. Can you explain it to me?
Michael – Think of the Child Tax Credit as a bonus you get to use against your taxes every year you file your return.
The Advance Child Tax Credit Payment is a Fifty percent (50%) advance bonus of that credit.
You either get the credit against your taxes or the advance payment; you do not get both.
The amount for 2021 has increased:
For the tax year 2021, the Child Tax Credit is increased from $2,000 per qualifying child to:
- $3,600 for children ages five and under at the end of 2021; and
- $3,000 for children ages 6 through 17 at the end of 2021.
Ashley – What should I be doing about this right now? It sounds great to get some extra cash in the checking account, but how will it impact our tax return?
Michael – The credit payment is going to be 50% of the child tax care credit.
For every qualifying child under the age of 17, you will receive $1,000 paid in six equal installments beginning of July 2021 and ending in December 2021
Ashley – I am sure that everybody would love a little extra cash flow, especially for summertime travel, children’s camps, dance lessons, and sporting camps.
Michael – I agree yet, I am concerned that next April, many people will find out they owe taxes when they file the 2021 Individual Income Tax Return.
For example, one of our clients has four children that qualify for the Advance Child Tax Credit Payment. For 2021, that is $9,950 credit against their income taxes.
Beginning July 15, 2021, they can receive a check every month for $829.
Yet, in April 2021, when we help them complete their tax return will have $4,975 less in the Child Tax Credit.
Ashley – Wow, that could create an absolute disaster for them.
Michael –. I believe that this “Advance Payment” has unintended consequences for families that don’t take the time to plan around this event
Ashley – What should I be doing?
Michael – You need to take the following steps to ensure that you are not creating financial hardship for your family
Step 1 – Review your 2020 Individual Income Tax return to understand how the Chide Tax Credit impacted you.
Step 2 – Project your 2021 tax return and make sure that your wage withholdings and estimated tax payments or adequate to pay your taxes.
Step 3 – From that tax projection, calculate how much of a Child Tax Credit you’re using pay your taxes
Now make your choice:
You can begin receiving the child tax care payment in July and either save the money for your taxes in April or spend it and perhaps deal with the unintended consequences next spring
Or you can go to the IRS website Advance Child Tax Credit Payment and elect not to have the payment sent to you.
Time is of the essence, and your financial health needs to get this decision right
Ashley – What can I do if our clients or one of my friends needs help with this?
Contact us, and we will help you work through the correct choice for you and your family.
It is time to take action!
Need to contact us?
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Ashley Graban
Director of Client Services | Tannery & Company
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The opinions expressed in this material are for general informational purposes only and is not a substitute for professional advice. Individual circumstances do vary.
