Child Support

2021 Tips: Child Support And The Child Tax Credit

2021 has ushered in some new legislation and changes that are crucial to families with children, adoptive parents, and also parents sharing custody of a child. The Child Tax Credit (CTC) was enacted in 1997 to help families bear the cost of raising a child. The Child Tax Credit was expanded in 2001 and was worth up to $2,000 per year for each eligible child until now. An eligible child is one who is under the age of 17 years at the end of the tax year. The tax credit was deducted from the total amount of federal income taxes that eligible families owe.

The CTC also has a refundable component. This means that if the CTC is more than what an eligible family owes in federal taxes, the excess amount is refunded to the family through a refund check. The CTC takes a major burden off working families and single parents as their federal income taxes are significantly reduced under this provision.

What has changed in 2021?

There is good news for families as the Child Tax credit has been hugely expanded under the American Rescue Plan Act of 2021. The American Rescue Plan Act primarily focuses on Covid relief funding for state and local governments to recover from the pandemic. But the facelift that it has given to the Child Tax Credit is an added blessing for families this year.

Under the new Child Tax Credit, any eligible family that has children under the age of 17 years can get up to $250 to $300 in direct cash payments. This means that for children up to 17 years the total annual credit will increase to nearly $3,000 and for those below 6 years, it will be $3,600. The new policy aims to lift nearly 45% of American children out of poverty.

Other notable changes include that the new policy makes the credit fully refundable in 2021, which was only partially refundable up to 2020. Also, eligible taxpayers will receive the Child Tax Credit in advance on a monthly basis from July 2021.

The important points to note in the Child Tax Credit 2021 are –

• Increased tax credit amount from $2000 per year to $3000 per child and $3600 for children below 6 years.
• The tax credit has been made fully refundable
• The minimum income requirement has been removed meaning that you can claim the tax credit even if you have zero income
• The age limit for eligible children has been raised from “under 17 years” to “17 years and below”
• Advance payments for the year 2021, which means you don’t have to wait till you file your 2021 tax returns next year. The IRS will send monthly payments for half of the year starting in July. The other half will be paid when you file your 2021 tax returns in 2022.
• The phase out rate will be lowered. The CTC amount was earlier gradually decreased starting at $200,000 for single filers and $400,000 for married couples. The new phase out rates start at $75,000 for single filers and $150,000 for married couples.

It is important to note that these changes are currently temporary for the 2021 tax year. If no further legislation is passed to make further changes, the tax credit will return to the prior rules that were effective in 2020.

How will the Child Tax Credit 2021 impact you?

With all the information at hand, some useful tips might help you better navigate your way through the new Child Tax Credit policies for 2021.

The monthly payments may increase the overall tax bill for some parents next year

For some parents, the advance monthly tax credit payments may not be as helpful. Particularly for freelancers, independent contractors, or anyone whose income is not a fixed amount every month might want to opt out of the advance payments.

That is because, at the time of income tax filing for 2021, the Child Tax Credit will be calculated based on your total income of 2021. If you qualify for a lower amount of tax credit than what has been paid in advance, based on your income, you will need to return the excess amount.

Similarly, anyone who is expecting their income to significantly increase during the year should also opt out of the monthly payments. In these cases, the taxpayers can claim the full amount of tax credit they are eligible for at the time of filing their returns next year, to lower the overall tax bill.

You can easily unenroll from the monthly payments at the Child Tax Credit Update Portal (CTC UP) of the IRS.

Monthly payments can only be claimed for children already born or in custody

Any updates you need to make to your family or income information on the Child Tax Credit Update Portal (CTC UP) will only be possible after September. So until September, the CTC that you receive for each month will be based on the information you had provided in your last tax return. So parents who have children born or adopted before the portal is live, eligible for the CTC, will receive the missing payments through tax refunds.

One important thing to note here is that only newborns and children whose adoption has been finalized in 2021 can be considered to avail full tax credit. For other cases, the child must have lived with you for at least half a year to be eligible for the tax credit. So, parents/ guardians granted custody of a child or a foster family taking in a child after July 1, 2021, will not be eligible for the new CTC. The child must also be a US citizen to be eligible.

If you reside in Florida, you might want to consult a reputed child adoption lawyer or child dependency lawyer in Florida to understand these qualification requirements better.

There are no binding rules on how you spend the CTC amount

Thankfully, the CTC amount paid to you is not tied to any fixed rules regarding spending. You can use it for any pressing needs you have and do not necessarily need to spend it on the child’s care. You can decide which financial gaps you want to fill with these payments and make your own spending decisions.

If you do not have any immediate pressing needs, you may want to save this money for the long run. You can save it to create a fund for your child that can be used for their higher education or other needs.

Only one taxpayer can claim the tax credit for a child

Even if both parents, or more than one household, are paying for a child’s care, only one taxpayer will be eligible for the child’s tax credit payments. In the case of separated parents, the parent with primary custody of the child is usually eligible for the Child Tax Credit.

If the child is under joint custody and both parents are paying for Child Support, they must come to an agreement. They have to decide on who will claim the tax credit, if they will claim it alternately every year, or make a different arrangement.

Consult a child dependency lawyer in Doral

To help you decide on what would be the best way to claim your Child Tax Credit in 2021, you may need assistance from a good family law attorney in Doral. Attorneys at Law Joseph M. Corey, Jr. P.A. can help you decide how to make the best of the new expanded Child Tax Credit 2021. The firm can boast of some of the most skilled and experienced child adoption lawyers in Hialeah, Doral, Miami, and several other locations throughout Florida.

Get in touch with us today to know more about our services.