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The first round of child tax credits is set to begin hitting bank accounts next week. Here is what you need to know about this program and how much money you can expect to receive and when.
What is the Child Tax Credit?
The child tax credit is part of the Biden Administration’s American Rescue Plan, passed earlier this year by Congress. As part of the deal, the child tax credit increased from $2,000 to $3,000 for kids between the ages of age 6 to 17. The credit is an even heftier $3,600 for children under age 6. The credit is only good for the year 2021, in an effort to provide a boost to parents struggling as a result of the COVID-19 pandemic and the resulting anemic economy.
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Up to half of the credit will be given to eligible families beginning on July 15 in six equal monthly installments. The remaining half of the credit will be applied to the 2021 tax return.
Understanding the Monthly Payments
Depending on the age of your child, you can expect to receive a maximum monthly payment of up to $300 for each child under the age of 6 and up to $250 for every dependent age 6 through 17. The six direct monthly payments are scheduled to begin on July 15. The August payment is scheduled for the 13th of the month while the remaining months are set for a payout on the 15th.
Income Limitations
It is important to note that although most American families will receive at least a portion of this credit, there are phase-outs imposed on the benefits based on income levels. There are a number of online calculators that can help you to determine how much of the credit your family is eligible to receive. Even if you do not receive the full credit, you may see a portion of this amount.
An adjusted gross income (AGI) of $75,000 or less as a single filer, $112,500 as a head of household, or $150,000 filing jointly will qualify you for the full amount. If your AGI is higher than these limits, the payments will start to phase out by $50 per every additional $1,000 over the pre-determined thresholds.
Other Things to Know
Parents of dependents age 18 or those with full-time college students through the age of 24 will receive a single $500 payment from the IRS. Like the rest of the credits, this amount is based on AGI. The parent also must be responsible for paying over half of the child’s expenses to qualify for this one-time payment.
The amount of the tax credit is dependent on the age of a child on December 31 of this year. For example, if you have a college student who turns 25 this fall, you will not be eligible for the one-time payment.
For divorced families, only one parent is eligible to claim the monthly payment. Parents who file incorrectly may have to repay the money when they file their 2021 taxes, making it important that you check all of the rules.
How to Receive Your Monthly Installment
Most families will receive the monthly payment directly in their bank account. This will only happen if the IRS already has your bank information on hand. The IRS likely has this account information if you filed a 2019 or 2020 tax return, used the online tool to receive a recent COVID-19 stimulus payment, or if your family receives federal benefits such as money from the Social Security Administration or Department of Veterans Affairs.
If the IRS does not have a current bank account on file for your family, you can expect to receive this money in the mail as a paper check or a debit card.
Want to Opt Out of Monthly Payments?
Some families may choose to opt out of the scheduled monthly payments and receive the entire amount as a tax credit on the 2021 return. This can be done through the Child Tax Credit Portal. While it is already too late to stop the July 15 payment, you can still unenroll for future monthly deposits. To opt out of the advance payments, families need to unenroll three days before the first Thursday of the month. For example, you will need to opt out by August 2 if you do not want the payment scheduled for August 13.
Reasons for opting out of the monthly payments include wanting a bigger refund next year or a recent income increase that would necessitate that you pay back the monthly payments.
When Will This Credit Expire?
The current legislation has this increase in child tax credits only going through 2021. However, the Biden administration has been vocal about its goal to garner enough legislative support to extend this boost in child tax credits through 2025
