As part of the $1.9 trillion pandemic relief plan signed into law in March 2021, the IRS is preparing to send out child tax credit payments to eligible families - essentially acting as a fourth stimulus.
The new monthly payments are to be dispersed as part of an extended child tax credit of up to $3,600 per child for working families. Payments will be launched starting July 2021.
Under the American Rescue Plan, the child tax credit was expanded to help alleviate financial stress for millions of families across the country. Families can expect to receive:
Families who filed a 2020 tax return will receive half the credit in monthly payments, meaning from July through December, receivers will get between $250 - $300 a month for each qualifying child. The remaining half of the credit will be claimed on their 2021 tax returns.
Similar to the other payments and tax credits distributed through the American Rescue Plan, there are stipulations around who will receive the assistance.
Families must have a qualifying dependent(s) under the age of 18.
Taxpayers earning under $75,000 per year ($150,000 per year for married joint fillers) are eligible for the full payment amount.
The payment is then reduced by $50 for each $1,000 above the income thresholds.
Payments are not eligible for individuals earning $95,000+ or $170,000+ for married couples.
To guarantee the maximum tax credit, it is important that you check your filing data with the IRS. According to CNBS, advanced payments are based on an IRS estimate from data like marital status, annual income, and the number of qualifying children.
If the data is outdated, it could trigger an under or overpayment of the tax credit. Please note: if your information is incorrect, and an overpayment is issued, it could result in you having to pay back the excess funds. For example, when you file your 2021 federal taxes, and your situation isn't what the IRS has on file and you weren't qualified to as much as you received, you'll have to return the overpayment. According to an expert at the American Institute of Certified Public Accountants, over payment "would reduce your refund or increase your tax payment next April. That’s how it would be paid back.”
Yes, you can choose to opt out of the monthly checks and receive a lump-sum payment in 2022 instead. The IRS intends to open a portal by July 1, 2021, that will allow families to waive the monthly payments.
This portal will also be where you can update your information if circumstances have changed, such as having a child in 2021.
Some reasons you may prefer one large payment versus monthly disbursements are:
If you don't have any eligible dependents to offer you a child tax credit, there are other options to help.
The Recovery rebate credit allows people to claim earlier rounds of Economic Impact Payments (EIP) if they did not receive the first two stimulus checks - up to $1,200 and $600 respectively.
211.org has a large range of available resources for the needs such as:
What are your thoughts on the expanded child tax credit?