The American Rescue Plan increases the child tax credit to $ 3,000 per child ages 6 to 17 and $ 3,600 annually for children under 6 for the tax year 2021. Are advance payments taxable income?
The $ 1.9 trillion American rescue Plan Act aims to help the families most affected by the coronavirus pandemic but also seeks to combat child poverty that affects almost ten million children in the United States. Is the money that is being sent next week considered taxable income?
The increase in the child tax credit is good news for millions of families struggling amid the pandemic as it will last for one year and gives those who qualify a financial boost.
Advance Child Tax Credit payments, just like stimulus checks, are not considered income and will not be reported as income on your 2021 tax return, for they are advance payments of your tax year 2021 Child Tax Credit.
According to the IRS, however, the total amount of advance Child Tax Credit payments that you receive during 2021 is based on the IRS’s estimate of your 2021 Child Tax Credit and, If the total is greater than the CTC amount that you are allowed to claim on your 2021 tax return, you may have to repay the excess amount during the 2022 tax filing season.
If, for example, you receive advance Child Tax Credit payments for two qualifying children properly claimed on your 2020 tax return, but you no longer have qualifying children in 2021, the Advance Child Tax Credit payments that you received based on those children are added to your 2021 income tax unless you qualify for repayment protection.
If you find this complicated to understand, and you want to know more information regarding your eligibility for repayment protection, and how to reconcile your advance Child Tax Credit payments with your Child Tax Credit on your 2021 tax return, see Topic H: Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return.
Those who wish to unenroll from receiving advance Child Tax Credit payments can unenroll through the Child Tax Credit Update Portal (CTC UP).