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By Vincent R. Birardi, CFP®, AIF®, Wealth Advisor at Halbert Hargrove

Those of you with children may have recently received a nice surprise in your bank account courtesy of our elected officials in Washington, DC. A likely source of the surprise? The Advance Child Tax Credit.

What is the Advance Child Tax Credit?

Originally enacted as part of the Taxpayer Relief Act of 1997, the child tax credit was initially a $500 nonrefundable credit that could be applied by eligible families toward their federal income tax bill. It has been expanded multiple times since then. As announced earlier this year, as part of the American Rescue Plan Act of 2021, the credit will be fully refundable and have a maximum value of $3,600 per child. (Refundable means that parents could receive all or a portion of that money as a cash refund if the credit exceeds how much they owe in taxes.)

More specifically, the American Rescue Plan Act implemented several significant changes to the child tax credit. These include:

  • Increased credits of up to $3,000 per qualifying child aged 6-17 and up to $3,600 per qualifying child younger than age 6.
  • Expansion of the credit to include 17-year-olds.
  • Advance payments toward the credit during the second half of 2021 (this is the “nice surprise” referenced above).

How does one qualify for these advance payments?

As defined by the IRS[1], you — and your spouse, if you filed a joint return — must have:

  • Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
  • Given the IRS your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
  • A main home in the United States (the 50 states and the District of Columbia) for more than half the year, or file a joint return with a spouse who has a main home in the United States for more than half the year; and
  • A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
  • Made less than the Adjusted Gross Income limits.

How much of a credit is given based on income?

Your income must be less than $200,000 for single filers and $400,000 for those married, filing jointly to qualify for the normal $2,000 child tax credit.

To qualify for the full $3,000 or $3,600 Advance Child Tax Credit: Your income must be below $75,000 for single filers, $112,500 for heads of household and $150,000 for those married, filing jointly to receive the additional $1,000 per child aged 6-17 and $1,600 per child younger than age 6. Those with incomes above these amounts will see that full credit decline $50 for each $1,000 in income earned above the threshold amount.

The American Rescue Plan Act only increases the child tax credit amount for one year. Next year, it is scheduled to return to its previous level of $2,000 per child. However, it could be extended into future years. Stay tuned.

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Disclaimer:

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice.

Sources:

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

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