Child Tax Credit for 2021

By Michael H. Karu, CPA/CFF

Several years ago, sweeping tax law changes were enacted. Among them was the elimination of personal exemptions and the addition of a new Child Tax Credit, (CTC). For calendar year 2021, that credit has not only increased, but has provisions for eligible taxpayers to receive early payments from the IRS of 50% of the 2021 estimated CTC, if the IRS has processed either your 2020 or 2019 tax returns. For eligible taxpayers, these advance payments will begin after July 15th and will continue through December 2021 on a monthly basis. You have the right not to receive the advance payments. There should be a portal on the IRS website to unenroll.

The CTC has increased from $2,000 per child to $3,600 per child ages 5 and under as of December 31, 2021 or $3,000 per child ages 6 through 17. However, there are two phase outs of the credit. The first is triggered if your Modified Adjusted Gross Income (MAGI) in 2021 exceeds $150,000 for Married Filing Jointly taxpayers, $112,500 if filing as Head of Household, or $75,000 if Single or Married Filing Separately. The CTC is reduced by $50 for every $1,000 (or fraction thereof) by which your MAGI exceeds the above limits. The second phase out begins when your MAGI exceeds $400,000 for joint filers or $200,000 for everyone else. Again, it is a reduction of $50 per $1,000 by which your MAGI exceeds the thresholds.

While the CTC is not taxable, there are ramifications. Accepting the advance payments will reduce any potential refund by that amount. While the advance payments are not taxable, if, based on your 2021 income tax return, you are not eligible for the total of the Advance CTC, you may have to repay all or part of it. Remember, the IRS giveth and the IRS taketh away.

Michael H. Karu, CPA/CFF, is a senior member of Levine, Jacobs & Company, LLC, a Livingston-based accounting and consulting firm. He is qualified by the Superior Court of New Jersey, Family Part, as an expert witness and as an authority on business valuations, specifically for closely held or familyowned businesses. Additionally, he is a Certified Divorce Mediator and is Certified in Financial Forensics.

Karu received his B.S. degree in Business Administration from The Ohio State University and holds professional memberships in the American Institute of Certified Public Accountants, the AICPA Tax Division and the AICPA Business Valuation, Forensics and Litigation Services Section, as well as the NJ State Society of CPAs. Karu is a published author of numerous articles seen in trade and consumer publications and has been a guest on radio and television shows.

Levine, Jacobs & Company, L.L.C. maintains memberships in the American Institute of Certified Public Accountants and the New Jersey Society of Certified Public Accountants. The firm prides itself on its teamwork abilities where “every account receives the talent and expertise of the whole firm.”

Michael H. Karu, CPA/CFF

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