The IRS is set to begin advanced payments of the enhanced child tax credit (CTC) on July 15, and 88% of families with children in the U.S. will get the benefit automatically, the agency recently announced.
The enhanced credit, a component of President Joe Biden’s American Rescue Plan (ARP), increases the existing tax benefit eligible families can receive from $2,000 up to $3,000 for kids between the ages of 6 and 17 and up to $3,600 for kids under 6.
The Biden administration says these credits and other parts of the ARP will help lift more than 5 million children out of poverty this year, reducing child poverty by half.
The IRS is paying out 50% of these credits to qualifying families in advance, starting July 15. While many details have yet to be announced, here’s what we know so far.
Who qualifies for the child tax credit?
According to the IRS, almost 90% of families with children in the U.S. qualify for the monthly payment. That’s approximately 39 million qualifying households with more than 65 million kids. Filers with adjusted gross incomes below the following levels will qualify for the full monthly payment:
- $75,000 for individual taxpayers
- $112,500 for heads of household
- $150,000 for married taxpayers filing jointly, and widows/widowers
The payments will be reduced by five cents for each dollar above those income thresholds. It is also worth noting that progressive Democrats introduced a bill last week to start the income phase-out at $150,000 for heads of household rather than $112,500.
A tax credit means qualifying families will see their tax bill reduced on a dollar-for-dollar basis. Because this is a refundable credit, qualifying taxpayers will receive a payment even if they don’t have any earned income or earn too little typically to owe taxes.
When will I get my first (and last) child tax credit payment?
The first child tax credit payments will start to arrive on July 15. (Make sure you understand the income limits for eligible households.) The first six payments will arrive monthly, targeting the same day of the month — though you may not receive the payment on the exact same day every month, especially if you get a paper check instead of a direct deposit payment.
If the child tax credit payment date falls on a holiday or weekend — for example, Aug. 15 is a Sunday — it’s likely the payment will go out the following Monday. The checks will end in December, with your final sum coming next year. Here’s a rough schedule, and here’s how to calculate your check amount.
Can I get a check for my kids if they’re between ages 18 and 24?
If your older dependents are 18 years old, they can qualify for $500 each. Dependents between the ages of 19 and 24 may qualify as well, but they must be enrolled in college full-time.
In what form will the child tax credit payments arrive?
The way your child tax credit money arrives could very well depend on how you receive your stimulus check money. Most people will receive child tax payments by direct deposit, but the IRS will also send paper checks and funds on debit cards.
For stimulus checks, people who received Social Security benefits like SSI or SSDI got $1,400 payments on a Direct Express card. Veterans who don’t normally pay taxes might also have a different delivery method.
Is there something extra I’ll have to do if I haven’t filed my taxes yet?
Payments will be automatic for those who filed their 2020 tax returns by the May 17 deadline. Nonfilers need to file a 2020 tax return to get the credit, even if they don’t usually submit tax returns. This will let the IRS know how many dependents are in the household who count toward the child tax credit benefits.
Taxpayers shouldn’t file an amended return related to the new legislation and shouldn’t take other “unnecessary steps,” the IRS said March 12.
If you didn’t make the May 17 deadline, you might not get the full monthly child tax credit payment you’re owed, at least not right away. The IRS said you’ll be able to update your income and dependent status, so the agency is using your most recent info when calculating payments.
When will the IRS open both child tax credit portals?
The IRS will launch two online portals by July 1.
- The first is for people who are not normally required to file an income tax return and will let these nonfilers provide information so they can receive payments.
- The second portal will allow families to update their information if their circumstances have changed, for example, if a new child arrives in 2021 who isn’t reflected on your 2020 tax return. You will also be able to use the portal to opt-out of the monthly payments and receive the entire amount at one time when you file your taxes in 2022.
How is this new child tax credit different from other years?
The first thing to know is you won’t get your child tax credit payments all at once in 2021. The credit part means the amount you owe in your 2021 taxes will be reduced by the “credit” you gain from your eligible dependents. That could either reduce your payment to the IRS for your 2021 taxes (filed in 2022) or else increase your tax refund. Normally, you’d receive that credit as a tax refund in 2022, but the plan is to bring you money sooner, which is why the checks will start coming in 2021 as “advance payments.”
This logic also explains why your 2021 child tax credit is split into two parts. The first part, in 2021, is the advance payment you can start using right away. The second part will apply to your 2021 taxes, which you file in 2022.
If I have a newborn or adopt this year, will I get child tax credit payments?
If you have a baby in 2021, your newborn will count toward the child tax credit payment of $3,600 if you and they qualify. Children who are adopted can also qualify if they’re US citizens.
Will both parents get child tax credit money if they share custody?
For the first two stimulus checks, some parents who shared custody of a child but weren’t married to each other were entitled to each claim money for the same child. That was only if they alternated years for claiming the dependent — in other words, if one parent claimed the child on their taxes in odd years and the other claimed the child on their taxes in even years. This is no longer allowed for the third check, and it’s our understanding it wouldn’t work that way for the child tax credit payments either.
How do dependents’ ages determine payment amounts for the child tax credit?
You may be confused about how your payments will be divided between 2021 and 2022.
- For each qualifying child age 5 and younger, up to $1,800 will come in six $300 monthly payments this year.
- For each child between the ages of 6 and 17, up to $1,500 will come as $250 monthly payments six times in 2021.
- For both age groups, the rest of the payment will come with your 2021 tax refund, when you claim the remainder of the tax credit in 2022.
Here’s how to calculate your family’s total child tax credit amount, including a monthly breakdown.
Is there any way to opt-out of the monthly checks and get one big payment next year?
You aren’t obligated to receive child tax credit payments monthly this year. Instead, you can choose to get one payment in 2022. You may want to opt-out, for example, if you’d rather have one large payment next year or if you’re concerned the IRS might overpay you this year and you don’t want to pay back money next year. That means you’d get a larger total in your tax refund or owe the IRS less money because the credit would be deducted from your total.
Are there any income requirements for the new child tax credit?
The amount you’ll get will phase out for people with higher incomes: singles earning more than $75,000 per year, heads of household earning more than $112,500 per year and married couples earning more than $150,000 a year.
What can I expect after the last 2021 check is sent?
The final advance payment of the child tax credit is scheduled to go out by Dec. 31, with the rest coming in 2022 with tax season. But President Joe Biden stated that the higher payments might last until at least 2025. He presented his American Families Plan proposal to extend the payments, stating in an April 28 speech: “Together, let’s extend the Child Tax Credit at least through the end of 2025.” It’s up to Congress to approve his request.
If I get more child tax credit money than I’m eligible for, do I have to send it back to the IRS?
Yes. The child tax credit rules aren’t as flexible as the stimulus check rules. If you receive more money than you should have, you will have to pay it back. One example of this happening is if you and the other parent of your child (who is not your spouse) are both paid for the child tax credit for the same dependent.
When you file your 2021 tax return (in 2022), if your tax situation isn’t what the IRS has in its system and you weren’t entitled to as much as you received, you’ll have to give the overpayment back. To avoid this tax inconvenience, make sure all your information is updated before the payments start arriving.
If you have questions or need assistance, please contact our office at 610.544.5900.