What the Child Tax Credit means for parent freelancers
This article is posted with permission from our partner Lili. Get the digital bank account designed for freelancers with Lili and manage your business expenses, estimate your taxes, and save for a rainy day all with zero account fees. Start a Lili account today.
Last month, families all over the country started receiving the Biden administration’s monthly advance payments from the new child tax credit (enacted by the American Rescue Plan), which allocates up to $300 per child a month.
A quick refresher: the amount you can receive is based on your income, how many kids you have, and how old they are. It gets all that info from your 2019 or 2020 tax return, whichever you filed last. Up until now, parents were able to receive a tax credit up to $2,000 per eligible child, but thanks to changes in the Rescue Plan, that amount was raised to $3,600 for kids under 6 and $3,000 for kids 6 – 17 years of age.
The credit is available to any single parent making $75,000 or less, heads of household generating $112,500 or less, and married parents filing joint returns making $150,000 or less. If you or your household’s AGI is above those numbers, no worries! You could still qualify for some extra federal cash. Anyone making above those limits (up to $400,000 a year) will have their credit reduced by $50 for every $1,000 of additional income.
The CTC comes in the form of monthly payment. Since we’re already halfway through 2021 (if you can believe it), only half the year’s payments will be doled out over the course of the next six months and you can claim the rest when you file taxes next year.
Excitingly, the CTC used to be just for those earning at least $2,500 a year (you needed to owe some federal taxes to be able to receive the credit), but for those of you who still haven’t quite yet gotten back to the grind, you will also receive payment for you and your children.
Get your payment 2 days earlier
The best news is that if you bank with Lili, that money could be deposited into your account two whole days earlier, each & every month. All you gotta do is enroll in direct deposit through the IRS Child Tax Credit Update Portal with your Lili Account. You can find your Lili routing and account number in the menu of your Lili app, right below your name. If you’ve already enrolled in direct deposit with another bank but want to move your deposits into your Lili account, no worries: you can update your bank account information to receive future payments on the same IRS portal.
What if your income has increased?
This is all great news, but as freelancers, there is one super important detail to keep in mind. Remember when we said these payments are based on your 2019/20 tax returns? As NPR mentions, “if your family’s income [is] above $75,000 for single filers, $112,500 for head of household, or $150,000 for married couples filing jointly, your child tax credit begins phasing out.” Freelancers and side hustlers know all too well that our income can drastically fluctuate from year to year, often growing as we build our network, expand our business, and become even better at what we do. This means, if it’s looking like your gross net income is going to be above the limit, you may want to consider opting out of the monthly payments and only claim what you are actually eligible for next tax season.