The Internal Revenue Service (IRS) recently released details about the child tax credit, including dates for when your advanced child tax credit payments will arrive.
The IRS is set to begin advanced payments of the enhanced child tax credit (CTC) on July 15 – 50% of these enhanced credits will be provided to qualifying families in advance. Qualifying families will claim the other half when they file their 2021 income tax return. According to the agency, 88% of families with children in the U.S. will get the benefit automatically.
The enhanced credit, a component of President Joe Biden’s American Rescue Plan (ARP) of 2021, increases the existing tax benefit eligible families can receive from $2,000 up to $3,000 for children between the ages of 6 and 17, and up to $3,600 for kids under age 6.
A tax credit means qualifying families will see their tax bill reduced on a dollar-for-dollar basis when they file their 2021 taxes next year. 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.
Who qualifies for the child tax credit?
Almost 90% of families with children in the U.S. qualify for the monthly payment, according to the IRS. 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 an individual taxpayer
- $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.
How much are the payments worth?
The benefit is worth up to $300 per month for each qualifying dependent child under age 6 on December 31, 2021, and up to $250 for each child between the ages of 6 and 17 on December 31, 2021.
That means a family will receive a maximum of $3,600 for each child under 6 for tax year 2021, and a maximum of $3,000 for older children. An eligible family with a 3-year-old, a 6-year-old, and a 17-year-old will receive an extra $800 each month from July through December, and another lump sum next tax season.
When will the first payment be made?
The IRS has the first payment scheduled for July 15. Subsequent payments will be made on the 15th of each month in 2021 (unless the 15th falls on the weekend or is a holiday). That means taxpayers will receive a maximum of $1,500 to $1,800 per qualifying child through the end of the year.
What action do families need to take to receive the payment?
Most families won’t have to do anything. Similar to the Economic Impact Payments (stimulus payments), the CTC payments will be automatically direct deposited into taxpayer accounts of their financial institution, or sent in the form of a prepaid debit card or paper check, depending on the information the IRS has on file for each qualifying taxpayer.
Qualifying families can also choose to unenroll from receiving advance Child Tax Credit payments. For example, if consumers expect the amount of tax they will owe is going to be greater than their expected refund when they file their 2021 tax return they may want to unenroll. Accepting advance Child Tax Credit payments is likely to reduce your 2021 tax refund or increase the amount of tax you owe.
Non-filers will need to take action. Even those who made too little to file a 2020 tax return should do so now in order to receive the advanced monthly CTC payments. The IRS is setting up two online portals to reach low-income families who don’t usually pay taxes. The first is similar to the form used for stimulus payments in 2020; it will allow filers to submit their family and income information and then claim any stimulus payments they may have missed since the beginning of the pandemic.
The IRS portal will also allow filers to update key information such as their address, income, and family size — all important indicators regarding how much money one can expect from the expanded child credit. These portals are now available by visiting irs.gov.