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What Taxpayers Need to Know About the Advance Child Tax Credit

Posted on in Tax Services

San Antonio tax helpAs part of the ongoing effort to help people who have been affected by the COVID-19 pandemic, the federal government created a new program in 2021 to provide advance payments to those who can claim tax credits for children. While the Advance Child Tax Credit may provide benefits for some, it may also cause complications for certain taxpayers, including in cases involving divorce. Those who are currently in the middle of the divorce process or divorced parents who share custody of their children may need to take certain actions to prevent tax issues that could affect them when they file their tax returns in the future.

What Is the Advance Child Tax Credit?

Parents or others who are eligible to claim a child as a dependent may claim the Child Tax Credit when filing their annual tax returns. For the tax year of 2021, the amount of this credit has been increased to $3,600 for children who are 5 years old or younger as of December 31, 2021, or $3,000 for children who are between the ages of 6 and 17 as of December 31, 2021.

To provide additional financial assistance for families, the IRS will send half of the total amount of the Child Tax Credit to taxpayers as advance payments. These payments will be made in monthly installments between July and December of 2021. Those who claim children under the age of 6 as dependents will receive $300 per month per child, and those who claim children between the ages of 6 and 17 will receive $250 per month per child.

To qualify for the Advance Child Tax Credit, a child must have a valid Social Security Number, and they must live with the person claiming the credit for at least half of the year. The person must also be able to claim the child as a dependent for the 2021 tax year.

Complications Related to the Advance Child Tax Credit

Many parents or others who claim children as dependents will be able to receive the Advance Child Tax Credit without any issues. The IRS has begun making these payments based on whether children were claimed as dependents on a person’s 2020 tax return. For those who have received their tax refund through a direct deposit to their bank account, nothing will need to be done, and Advance Child Tax Credit payments will be made in the same manner.

However, there may be some situations where a person will need to take action to ensure that Advance Child Tax Credit payments are handled properly. Parents who are currently going through a divorce may want to delay receiving these payments until they determine who will claim the children as dependents for 2021. Divorced or unmarried parents who alternate claiming a child as a dependent each year may also need to unenroll from Advance Child Tax Credit payments if they will not be claiming the child as a dependent in 2021. A parent who had not previously claimed a child as a dependent may need to provide information to the IRS to ensure that they receive the payments. If payments are made in error, a person may be required to repay the IRS for these amounts when filing their tax return for 2021.

Contact Our San Antonio Tax Agent for Tax Credits

If you have questions about the Advance Child Tax Credit or need to determine how to handle the Child Tax Credit when filing your tax return, Ed Villanueva & Associates, Inc. can advise you on how to address these issues and avoid potential tax penalties. We provide tax return preparation services, and we help taxpayers address divorce-related tax issues. Contact our Corpus Christi enrolled tax agent at 210-382-9015 to set up a free consultation.

 

Sources:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

https://www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-frequently-asked-questions

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