​Update: What You Need to Know about the Childcare Tax Credit Changes

​Update: What You Need to Know about the Childcare Tax Credit Changes

07/14/2021 Tags: Announcements, In the News


Millions of families nationwide have gotten letters from the government with details about the Childcare Tax Credit — or CTC.

The letters explain that taxpayers who are eligible for an advanced CTC payment and want to receive the payment don’t have to do anything at this time. The IRS's portal to manage payments is also now open, and they'll issue the first advance payment on Thursday, July 15, 2021.

With the portal, you can check to see if you’re enrolled to receive advance payments or unenroll to stop getting advance payments. You can also provide or update your bank account information for the monthly payments that will start in August.

But let’s back up and do a quick CTC refresher: The American Rescue Plan that became law in March increased the CTC for many taxpayers. The credit is fully refundable. That means, as a taxpayer, you can benefit from the credit even if you don’t owe any income taxes.

For the 2021 tax year, the government increased the CTC from $2,000 for each qualifying child to:

  • $3,600 for children ages 5 and under at the end of 2021; and
  • $3,000 for children ages 6 through 17 at the end of 2021.

The government plans to pay out half of those amounts over the course of six months and the rest with your tax return. The CTC amount you receive will get reconciled on your 2021 tax return (those will be the taxes you file in early 2022.)

To get the full Childcare Tax Credit amount, your modified adjusted gross income — if you’re married filing jointly — has to be less than $150,000 (for those filing as head of household, the amount is $112,500, and for those filing as single or married but filing a separate return, the amount is $75,000.) If you make more than those amounts according to your filing status, you might have to repay the advanced payments come tax time.

The government’s letter should show a website that’ll allow you to enter your direct deposit information if you don’t want to wait for a check and didn’t have direct deposit details on your 2020 tax return.

If you’re looking for more specific answers, the IRS has a lot of information on its website, including an extensive list of FAQs. And if there’s anything we can do to help you understand the CTC changes, please let us know.

Image of John Mitchell



KAYCE GERLACH

Shareholder and CPA, CGMA, CEPA




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