(WXYZ) — Some big changes are coming for parents with their 2021 tax returns. Part of President Biden's American Rescue Plan bumps tax credits for kids. It used to be $2,000 for every child under 17.
It's now more and you won't have to wait until filing your 2021 taxes to get that credit. You won't even have to wait longer than a month.
The IRS this week sending letters like this to parents across the country. An alert that come July, parents may be eligible for monthly child tax credit advance payments – a first.
It's part of the American Rescue Plan signed into law by the president back in March to help with economic recovery from the coronavirus.
“Particularly to people with kids and are in this difficult time, this is really a great opportunity to get their money ahead of time and use it for the care of their child," said Rick Bloom with Bloom Advisors.
Here's the child tax credit changes:
- Instead of $2,000 per child up to 17 years old, it's now $3,000.
- Except for kids under age 6, where it's $3,600
- And there's no limit on how many children.
So let's say an eligible family has three children, one under 6 and two over their tax credit would be $9,600. The advanced payments are half of the total credit spread out over six months.
In our example, 4,800, $800 payments a month starting in July through December. The rest comes after filing 2021 returns.
"There’s no disadvantage to this. So if you’re eligible you should take advantage of it. It’s plain and simple" Bloom said. "Married couples it starts phasing out at 150k, once you get to 170k it's over."
For single people, it starts at 75,000 the phase-out is up to 95,000.
The IRS says they will soon open a portal for people to update income changes, provide the number of qualifying children and direct deposit info. And opt-out of the monthly payments in favor of receiving a lump sum credit after filing 2021 returns.
"But I wouldn’t recommend too many people opt out of getting their checks as soon as possible," Bloom said. "I just think that they’re going to be waiting nine months to get their money and here this money can be really used now particularly for people in these income brackets that are struggling."
And the IRS says the credit is fully refundable, meaning taxpayers can get the credit even if they don't have earned income, or owe taxes.
Eligibility will be based off 2019 returns if 2020 returns haven't been filed. This expanded credit is for the 2021 tax year only.