(People on low incomes – under $ 40,000 a year for unmarried taxpayers and $ 60,000 for married couples – are in need, according to a report by the Congressional Research Service.)
Also, some families prefer to get a big refund when filing their tax returns as a kind of compulsory savings plan, said Joanna Ain, associate director of policy at Prosperity Now, a nonprofit that promotes financial security for low-income people.
“Your tax refund is the only time they see that much money,” she said. They might fear that if the money is spent in smaller amounts, rather than arriving as a lump sum that can help cover expensive items like large appliances, heating systems, or car repairs, they might be spending the money.
Divorced couples with joint custody of children may face a different problem. They often take advantage of the child credit in alternating years: one spouse will claim it one year, the other the next, and so on, said Mr DuFault. But the IRS will likely send the prepayments to the spouse who claimed the loan in 2020 – and who may then have to repay it at tax time next year or get a lesser refund.
To avoid this, the spouse who is not supposed to receive the loan can refrain from paying the advance payment. The “right” spouse may not get an upfront payment but will be able to claim the full amount of the credit on their tax return for the next year, said Jeffrey Wood, certified public accountant and partner at Lift Financial in South Jordan, Utah.
For more details about the loan, the IRS has compiled a list of frequently asked questions. The White House also has a website devoted to tax credit, with examples of the credits families can expect based on their income and family size.
Here are some questions and answers about the 2021 child tax credit:
Who is entitled to the loan?
You can receive full credit if your income is less than $ 75,000 for a single parent, $ 150,000 for married couples filing a joint tax return, and $ 112,500 for “head of the household” applicants – typically unmarried single parents – amounts to. Credit begins to shrink above these thresholds and drops to zero with higher incomes ($ 240,000 for unmarried taxpayers and $ 440,000 for married couples, according to examples from the Congressional Research Service).