Sometimes, I pinch myself to see if I’m dreaming. This world is going nuts! Fires burning out of control, inflation, divisions over just about anything, athletes protesting against the country they represent, and now the U.S. government is refunding part of the long-running Child Tax Credit in advance.
I keep asking myself, “Will this new advance Child Tax Credit actually help folks in need more than make a bigger mess down the road?”
My experience has shown that lower income families look forward to getting a huge tax refund every year when they file their tax returns. (Don’t even get me going on how you call getting more money back than you paid in a “refund.”) This will be reducing that large refund a bit. What will that do next spring when folks realize they will be getting small refunds?
So, here’s the deal. First off, the credit has increased from $2,000 in 2020 to $3,000 per child in 2021. ($3,600 for children 5 years old or younger.) Second, the age for qualifying for the credit got bumped up one year from 16 years old to 17. Third, the credit is fully refundable (if Adjusted Gross Income is less than $150,000 married, $112,500 head of household). Fourth, the advance refund is half of the credit. Thus $250 a month for kids 6-17 years old and $300 for kids 5 and younger in 2021.
At this time, nobody knows for sure if this new monthly Child Tax Credit refund is just for 2021, or if it will be extended to future years. Stay tuned.
So, if you qualify, you should have already received your first “advance payment” and are looking forward to the next one in August. This will continue through December of this year.
Good news! Because they bumped the credit amount up by almost 50% (for kids over 5 years old), the 50% refund you will be getting for the rest of 2021 should not be a huge reduction in the refund you would normally be expecting next year.
Here’s an example: If your AGI qualifies, let’s say your annual tax refund is normally about $7,000 and you have three children who are all over 5 years old. You will receive $4,500 in advance Child Tax Credit by the end of December of this year. Your refund in 2022 would be reduced to $5,500. A bit less but maybe still enough to help out with those pesky once a year bills like repairing the car or the house. If all three of those children are 5 years old and younger, the advance credit you will receive bumps up to $5,400 and your 2022 refund will only $600 less than normal, or about $6,400.
So, if you are a parent struggling to keep the family budget above water, hopefully this will help you out. Maybe you should pinch yourself to see if you are dreaming?
Did you hear? Psalm 119:147 says, “I rise before dawn and cry for help; I hope in your words.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.