2021 Advance Child Tax Credit – What You Need to Know
For many eligible families, direct deposits or checks were sent out in July 2021 and will continue monthly. This payment is up to $300 per month for kids under 6 and $250 per month for kids 6-17 years old. Many struggling families are grateful for the monthly payments, but just like the other stimulus-related payments from the government, this must be accounted for on you 2021 tax return. The payments will probably lower down your refund or could even cost you significant dollars at tax time.
The Child Tax Credit was $2,000 per child and has been raised to $3,000-$3,600 (dependent on age and of course income).
The monthly payment is an advance on the credit. This means at tax time, if a family received all payments during the year, they will receive less at tax time with their refund.
To add to the confusion, if you get more than you’re eligible for, then you will have to pay it back.
Those who share custody of children need to be very careful, especially in the cases where the child moves back and forth between returns (even / odd years). The credit will automatically go to whoever claimed the child(ren) on their taxes in 2020. Those who are alternating and do not claim the kids in 2021 will then owe the advance back with their tax return.
Only one parent can claim the credit for each child. It cannot be split.
If you believe you will owe the payments back, or generally owe money and do not want to owe more at tax time, there is a way to opt out of the credit. To do so, visit the Child Tax Credit Update Portal and follow the directions for opting out of receiving these payments.
The deadline to opt out for the month is around the 1st of each month as the payments go out on the 15th.
If you have not received the advance on the credit and you are eligible, then the credit will be added on to your 2021 tax return. You are not losing the credit. It is just delayed.
Keep in mind that the amounts received during the year will need to be provided to your accountant at tax time as the credit will have to be reconciled. If the advance reported is not correct, then your return will be held up.
Child Tax Credit
By Rachel Santana, EA
Partner at Hamilton and Phillips PA
Most taxpayers with children under the age of 17 saw an increase in their tax refund in tax year 2018. This is because the Child Tax Credit, which was $1,000 per child, doubled to $2,000 per child. This was huge in that a family with two younger children would have seen a $2,000 increase on their bottom line.
In addition, the effect could be much bigger as this credit had phased out when a single person earned $75,000 or more a year ($110,000 for married couples). However, under the new tax law effective 2018, this phase-out now starts at $200,000 for a single individual and $400,000 for joint filers.
This means that a married couple earning $150,000 per year and two young children would have an increased credit / refund of $4,000. That is a huge benefit.
As this credit becomes more significant, it is important to understand when this credit goes away.
In order for a child to qualify as a dependent, they must be under the age of 19 at year-end, or they must be a full time student (for at least five months of the tax year) and under the age of 24 at year-end. They can be any age if totally and permanently disabled. They must share your residence for more than half of the year (not required if living on campus in college).
However, even though they are your dependent and meet the criteria above, the valuable Child Tax Credit is only available until the child turns 17. In the year that they turn 17 years of age, the Child Tax Credit goes away and they become eligible (per above) for the much less valuable Dependent Credit ($500).
It is important to be aware of this change and expect that your tax bill will increase or refund be lowered once your child turns 17. Good luck is the result of good planning.
Whether you consider Etsy a hobby or an endeavor at a for-profit business, the Florida Department of Revenue considers it potentially subject to sales tax.
If you are an on-line seller, then you are required to collect and remit sales tax from your customers in the state of Florida. Not everyone realizes that sales tax rates vary by county. Because you could have customers in many different counties, the Florida Department of Revenue recommends collecting and remitting a flat 7.5%.
Oh yes, the tax is due on the whole amount including shipping.
In addition, even if you did not sell online but participate in a craft show where your goods are in “competition” with others, then you are required to collect and remit.
If this only happens 1-2 times per year, then you can apply for a “special event sales tax number” which is good for just that 3 day period and allows you to collect / remit / file, and be done with sales tax after that trade show.
However, if this activity occurs more than 1-2 times per year, even if you are not selling online, you are advised to get a permanent sales tax number.
The nice part is you can buy supplies that go into the finished product tax-free by just showing your tax certificate at Michaels, Walmart, etc.
Now that you are armed with this knowledge – go forth, sell, and be profitable.
Rachel Santana, EA, Partner
Hamilton and Phillips LLC