If you have children, many of you happily received this past week the 1st of what will be several advance monthly payments from IRS.
Many of you were surprised to receive the payments, thinking that your income was too high to be eligible.
The American Rescue Plan increased the Child Tax Credit from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six, and raised the age limit from 16 to 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (also called Head of Household).
The credit slowly phases out until your 2021 income hits $400k. Don't expect a credit for incomes above that amount.
IRS is paying some of the annual credit over several months as an advance. The amount you receive will be reported on next year's tax return. Eligibility for the advance repayment is based on your 2019 or 2020 income Final eligibility will be determined by your 2021 income. If your income exceeds certain amounts, expect to "pay back" some of the advance through an additional tax on next year's return.
If you've received the advance payment and expect your 2021 income to be higher than $400k, let me know and I can help you prepare for next year's possible tax bite.
Hope this helps. If you have questions, please let me know.