Been getting a lot of questions about this so thought I'd try to give a breakdown for anyone curious. Obviously everyone's situation is different so there will be variables.
The credit being paid in advance is part of the same child tax credit that you would or wouldn't qualify for on your 2021 return. If your income changes from the 2020 return (or 2019 if 2020 isn't filed yet) you could be over or under paid in the advance period.
Child tax credit thats always been there phases out at 200k for single, married 400k. $2,000 per kid ages 0-16. Ages are always measured as of the last day of the year. So if your kid turns 17 on December 31st they no longer qualify for the $2,000.
New child tax credit phases out at 150k and different amounts depending on age. 0-5 $1,600 6-17 $1,000. Note that the new credit includes 17 year olds but the old one still doesn't. Never understood why that didn't go to 18. Hopefully they raise the old one a year too.
So 100k income with 2 kids ages 4 and 8 would get $6,600 around half of which they would get in advance payments July-December. Compared to the 4k they got on the 2020 return.
Personally I hate that they're paying it in advance because many people will not realize it's an advance payment. Think about same situation where person is used to getting a 1k refund. They get 3,300 in advance payments (of which 1,600 is new) and now they owe $700 with the return (3,300 advance - 1,600 new credit - 1k typical refund). Yes its even better than a wash in the end but people are creatures of habit. Right now many are thinking that 3,300 of advance payments is all new money.
A $1,700 swing on the tax return is a lot to a family of 4 making 100k if it's unexpected. Bottom line know what your credit will be on your 2021 return and plan for how the advance payments will affect your typical refund/amount due.
The credit being paid in advance is part of the same child tax credit that you would or wouldn't qualify for on your 2021 return. If your income changes from the 2020 return (or 2019 if 2020 isn't filed yet) you could be over or under paid in the advance period.
Child tax credit thats always been there phases out at 200k for single, married 400k. $2,000 per kid ages 0-16. Ages are always measured as of the last day of the year. So if your kid turns 17 on December 31st they no longer qualify for the $2,000.
New child tax credit phases out at 150k and different amounts depending on age. 0-5 $1,600 6-17 $1,000. Note that the new credit includes 17 year olds but the old one still doesn't. Never understood why that didn't go to 18. Hopefully they raise the old one a year too.
So 100k income with 2 kids ages 4 and 8 would get $6,600 around half of which they would get in advance payments July-December. Compared to the 4k they got on the 2020 return.
Personally I hate that they're paying it in advance because many people will not realize it's an advance payment. Think about same situation where person is used to getting a 1k refund. They get 3,300 in advance payments (of which 1,600 is new) and now they owe $700 with the return (3,300 advance - 1,600 new credit - 1k typical refund). Yes its even better than a wash in the end but people are creatures of habit. Right now many are thinking that 3,300 of advance payments is all new money.
A $1,700 swing on the tax return is a lot to a family of 4 making 100k if it's unexpected. Bottom line know what your credit will be on your 2021 return and plan for how the advance payments will affect your typical refund/amount due.
