﻿Alright, folks, so I realized that I’ve been talking a lot about the
fourteen hundred dollars stimulus checks, timing of them, kind of focusing on that,
last month I talked a lot about the updated Child Tax Credit that’s now law,
but I haven’t really spent a lot of time talking about that one lately, so in this video I thought
I would just give a recap of this updated Child Tax Credit because I know that affects many
of you out there. So first of all, how did the bill that Joe Biden signed into law yesterday,
the American Rescue Plan Act of 2021, affect the Child Tax Credit? Well, I’m going to talk
about the monthly payment option later in this video, but first let’s talk about the numbers
for the credit as a whole. What you need to know is that this bill increased the Child Tax Credit
for only tax year 2021, so for tax year 2020, it didn’t make changes to the Child Tax Credit,
and this bill did not make changes to the Child Tax Credit for 2022 or going forward. So for tax
year 2020 and tax year 2022 unless Congress makes this change for 2022 as well, it’s the old rules,
two thousand dollar Child Tax Credit for each qualifying child under the age of 17
with a maximum of fourteen hundred dollars per child being allowed to be refundable.
But for tax year 2021 only, the new stimulus bill says, “Instead of two thousand dollars per child,
we’re increasing the Child Tax Credit to three thousand dollars per child for children between
the ages of six and seventeen, so yes, now 17-year-olds are eligible, and three thousand,
six hundred dollars for children under the age of six.” And this updated Child Tax Credit for
tax year 2021 is fully refundable so let’s say you have a kid that turns four in 2021, a kid
that turns six in 2021, and a kid that turns 17 in 2021, your 2021 Child Tax Credit is ninety-six
hundred dollars, thirty-six hundred for the four-year-old and three thousand for each of the
other two kids, but let’s say your federal tax liability is only five thousand dollars,
married couple making let’s essay seventy thousand dollars a year in W-2 jobs,
you only have a five thousand dollar tax liability, approximately. Well, the Child Tax
Credit would wipe out your five thousand dollar tax liability, plus you would get a refund check
for forty-six hundred dollars in addition to another federal income tax withholdings that were
taken out during the year. So that’s huge, bigger child tax credit and it’s entirely refundable now,
which obviously helps lower-income families that perhaps previously didn’t get the entire Child Tax
Credit because a because of it was nonrefundable and they didn’t have the income tax liability
to absorb the full credit. Now, let’s talk about income limitations here because this is
where things get slightly complicated. And when we talk about these income limitations it’s helpful
to think about the 2021 Child Tax Credit as having two components, the “old” two thousand dollar
portion, let’s call tha the base portion, and the “new” one thousand dollar addition for children
between the ages of six and seventeen and the “new” sixteen hundred dollar addition for children
under the age of six. So for the old portion, the two thousand dollars, the “old” income limitations
apply, which are two hundred thousand dollars of adjusted gross income for singles and four hundred
thousand dollars of adjusted gross income for married filing jointly. So if your adjusted gross
income is below those amounts, you’re getting the full two thousand dollar “base” portion per child,
and I’m assuming that the majority of my viewers have incomes below those amounts,
so I’m not going to dwell on that. Now, the income limitations for the “new” portions of the 2021
Child Tax Credit, that’s the one thousand dollar addition for children between the ages of six and
seventeen and the sixteen hundred dollar addition for children under the age of six, the income
limitations here are similar to stimulus checks, at least the first two rounds, third round works a
little differently because it has a hard ceiling. So if you’re single and your adjusted gross income
is seventy-five thousand or below, or if you’re head of household and your adjusted gross income
is one hundred and twelve thousand five hundred or below, or you’re married filing jointly and your
adjusted gross income is one hundred and fifty thousand dollars or below, you don’t have to worry
about phaseouts. However, if your income is above those amounts, the amount of the expanded portion
of the Child Tax Credit, that’s the additional one thousand dollars for children between the ages
of six and seventeen and the additional sixteen hundred dollars for children under the age of six,
if your income is above those threshold amounts for your filing status, your expanded portion of
the Child Tax Credit decreases by five cents for every dollar your adjusted gross income exceeds
those amounts. So for example let’s say you’re married filing jointly and your income for the
year is one hundred and sixty thousand dollars, and you have a three-year-old. So you’re getting
the two thousand dollar credit, you’re not phased out of that, because phaseouts for that begin at
four hundred thousand dollar adjusted gross income for married couples filing jointly. But for the
sixteen hundred dollar portion, that’s the 2021 “addition” for children under the age of six,
that is reduced for you by five cents on the dollar for each dollar your income exceeds
the one hundred and fifty thousand dollar threshold for your filing status. So
if your income is one hundred and sixty thousand, your income exceeds the one
hundred and fifty thousand dollar threshold by ten thousand dollars, so point-oh-five times ten
thousand dollars is five hundred dollars, so your sixteen-hundred-dollar addition
would be reduced by five hundred dollars, so you would only be eligible
for an eleven-hundred-dollar “addition” for your three-year old, that number plus the “old” portion
of two thousand dollars is thirty-one hundred dollars, so your Child Tax Credit for 2021
would be thirty-one hundred dollars. Alright, now let’s talk about the monthly payments.
So the monthly payment would be equal to your maximum child tax credit for 2021 divided by
twelve with you claiming any amounts you didn’t get as a monthly payment on your 2021 tax return
that you file in 2022. Now, the IRS is shooting to get these monthly payments going beginning in
July, that’s the word on the street. However, the American Rescue Plan Act gives them leeway to say,
“Hey, we can’t do it that early, or hey, monthly is too difficult, so we’re just going to do it
quarterly,” so we’re going to have to see what happens there, IRS has been pretty mum on that
right now, but of course I keep my ears out for these things. But let’s say that the IRS starts
doing monthly payments in July, what would this look like? So for the example I used previously,
married couple expecting a twenty-one-hundred-dollar Child Tax Credit
for 2021, thirty-one hundred dollars divided by 12 is about two hundred and fifty-eight dollars
so they would be looking at receiving two hundred and fifty-eight dollars a month for July,
August, September, October, November, December, so a total of one thousand, five hundred, and
forty-eight dollars of monthly payments throughout those months and they would claim the difference
between thirty-one hundred and the amount they received as monthly payments as a tax credit on
their 2021 tax return, so one thousand, five hundred and forty-eight dollars of monthly
payments and a one thousand, five hundred and fifty-two dollar credit claimed on the tax return.
So that’s how that would work. You will be able to opt out of the monthly payment and just claim
the whole thing on your tax return if you want to. Alright, that’s what I have on that, folks,
obviously with the monthly payment piece we really just have to wait for guidance from the
IRS on that, but thank you so much for watching, and I will see you in the next video, buh-bye.