July 1, 2021
The IRS is expected to begin distributing monthly payments for the enhanced child credit beginning in July. Some recipients of this child credit need to be aware that they may be obligated to pay back a portion of those funds at the start of tax time next year.
The passing of the American Rescue Plan allows for advance payments of the child tax credit to be issued out to qualifying taxpayers in periodic installments. Americans can receive up to $300 a month per child, however, the child credit advance payments will be estimated by the IRS based on the available data they have on file for an individual such as income, marital status and number and age of qualifying kids.
If the IRS has outdated data on an individual, this may trigger an overpayment of the tax credit. This will require the individual who received the additional money to pay back any excess funds. Receiving the advance payment could mean it could reduce the refund amount or increase the tax payment for an individual come next tax season.
The IRS references 2020 tax returns and if unavailable, 2019 returns, in order to determine a taxpayer’s total tax credit amount for 2021. The American Rescue Plan raised the maximum credit amount to $3,000 per kid ages 6 to 17, and $3,600 for younger children. The remaining half would be claimed during tax season next year.
An individual may receive a tax bill if a payer’s income increases dramatically from the income reported on a 2020 return. This may also reduce someone’s credit amount or disqualify them based off their earnings.
The Treasury Department created an online portal for taxpayers to update their information if it changed during the calendar year. The portal allows individuals to change the following: marital status, income changes and number of kids.
Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.