Child Tax Credit

[hermione]

I have tried and tried to understand this. Can anyone explain it to me if I use real numbers?

In 2020, we made $155,000 combined. In 2021, we’ll make closer to $175,000. We’ll be overpaid from the credit, correct? And then owe that money back at tax time? Should I just refuse the money?

[twinmomma]

I have a question about this too. I got my letter the other day from the IRS about it. I'm within the income limits, but is there a reason why I'd want to opt out of the monthly payment?

[plutosmoon]

I'm still fuzzy on higher level income numbers, but at $175,000 in agi you should still qualify for the standard $2000 child tax credit, since it is available to families making up to $400k (joint filers). You only miss out on the extra $1000. If you receive the $250/month for your child July-December, you'll get $1500 as an advance. When you file your 2021 taxes you won't have been overpaid since you are entitled to the $2000 credit, and you'll only have received $1500 of it. I think at 155k agi in 2020 you will receive less than $250/month, but that's where I'm fuzzy. As to not taking the advance, that depends on how the $2000 child tax credit usually impacts you paying at tax time vs refund situation.

For example:
taxes withheld=$10,000
Tax liability= $17,000
child tax credit ($2000)
payment due to IRS= 17,000-2000-10,000= $5000

Same scenario receiving advance payments:
taxes withheld=$10,000
tax liability=$17,000
remaining child tax credit ($500), this is still a $2000 credit you just received $1500 already
payment due to IRS= $17,000-500-10,000= $6500

On the refund side if you overpay taxes:
taxes withheld=$21,000
Tax liability= $17,000
child tax credit ($2000)
refund from IRS= 21,000-17000+2000= $6000

Same scenario receiving advance payments:
taxes withheld=$21,000
tax liability=$17,000
remaining child tax credit ($500), this is still a $2000 credit you just received $1500 already
refund from IRS= $21,000-17,000+500= $4500

This is my understanding of how it would work.

[dcn]

www.google.com/amp/s/www.cnet.com/google-amp/news/child-tax-credit-calculator-2021-see-how-much-your-family-could-get-starting-july-15/

I thought this was a clear explanation. It says there will be a portal where you can input the increase in your income so they do not overpay you. If they do, it will flow through your tax return and will decrease any refund or increase you amount due.

[puppylove64]

It isn’t based on what you make. It is based on your AGI. Take your wages, less your 401k contributions then add any interest, dividends you make. If you have any other taxable income add that. Are you still over $150k? If it is close, you can increase your 401k with holdings to bring your AGI down below the threshold.

[ny96]

Jun 11, 2021 13:47:38 GMT -5 dcn said:

www.google.com/amp/s/www.cnet.com/google-amp/news/child-tax-credit-calculator-2021-see-how-much-your-family-could-get-starting-july-15/

I thought this was a clear explanation. It says there will be a portal where you can input the increase in your income so they do not overpay you. If they do, it will flow through your tax return and will decrease any refund or increase you amount due.

In the CNET article they touch on the child and dependent care credit increase. I’m wondering if the max $16,000 would have to be divided evenly or childcare expenses specified to each child claimed. DS1 will only have about $4000 in expenses (if summer camp still counts as an eligible expense), but we will have paid about $22,000 in childcare expenses for DS2. So, could we only claim $12,000 ($4,000 for DS1 and $8,000 for DS2), or the full $16,000?

[hermione]

Jun 11, 2021 15:58:02 GMT -5 puppylove64 said:

It isn’t based on what you make. It is based on your AGI. Take your wages, less your 401k contributions then add any interest, dividends you make. If you have any other taxable income add that. Are you still over $150k? If it is close, you can increase your 401k with holdings to bring your AGI down below the threshold.

I had no idea - thank you!

[jlt19]

It would be a lot easier if I could understand how the new W4 worked, even a little bit. DH is still on the "old" way so I'm not touching his. He usually pays way more than I do, which is fine b/c I have FSA, health premiums, and HSA taken out of mine (both of us have 401k), so a lot less net. Also, I can change my W4 via Workday, so it's not like I'm having to sign something and hand it to a payroll person. It updates itself.

I've run all different scenarios since January 1, using Married/Joint; single; 1 dep, 2 dep, 0 dep. My fed withholding has ranged from $8.72 per pay period to $160.31 per pay period.

And I've tried to use the IRS's calculator and since my withholdings have varied so widely, it's been all over the place too. This will be my first full year in this job and my last one didn't have a 401k, HI premiums, HSA or FSA. So I have NO clue what's going to happen. Last year we owed, but I knew we would b/c of an untaxed settlement, but then we owed less than anticipated b/c I was on unemployment for a few months.

I think I'll just take the payments and save them myself. I honestly don't want to get used to an extra monthly amount anyway if it isn't going to be permanent.

[fryjack2]

plutosmoon I think I read that the credit phases out after 150k by $50 per 1000k over 150k. I'm not sure there would be any money left at 400k?

I don't think we qualify, but do you have to do anything to get these credits or are they automatically deposited into your bank account?

[plutosmoon]

fryjack2 ,there are 2 phase outs per the IRS. www.irs.gov/credits-deductions/2021-child-tax-credit-and-advance-child-tax-credit-payments-topic-c-calculation-of-the-2021-child-tax-credit. The $2000 child tax credit of previous years isn't going away. The $150k threshhold is just for the extra $1000 or $1600.

"Q C4: How does the first phaseout reduce the 2021 Child Tax Credit to $2,000 per child?

A4: The Child Tax Credit begins to be reduced to $2,000 per child if your modified AGI in 2021 exceeds:

$150,000 if married and filing a joint return or if filing as a qualifying widow or widower;
$112,500 if filing as head of household; or
$75,000 if you are a single filer or are married and filing a separate return.

The first phaseout reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you.

Q C5: How does the second phaseout reduce the remaining $2,000 Child Tax Credit?

A5: The Child Tax Credit won’t begin to be reduced below $2,000 per child until your modified AGI in 2021 exceeds:

$400,000 if married and filing a joint return; or
$200,000 for all other filing statuses.

The second phaseout reduces the Child Tax Credit by $50 for each $1,000 (or fraction thereof) by which your modified AGI exceeds the income threshold described above that is applicable to you."

I'm fuzzy on higher earners getting the advance, I haven't read much up on that yet. Edit- it's automatic if you qualify and don't opt out.

[treschic]

Jun 14, 2021 19:27:07 GMT -5 fryjack2 said:

plutosmoon I think I read that the credit phases out after 150k by $50 per 1000k over 150k. I'm not sure there would be any money left at 400k?

I don't think we qualify, but do you have to do anything to get these credits or are they automatically deposited into your bank account?

The extra credit completely phases out at $200k for joint filers, not $400k like the existing one.