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The IRS has confirmed that advance payments for the enhanced child tax credit—up to $3,600 per child—will be distributed to families on the 15th of each month through the end of the year. Nearly all families qualify for at least a partial amount, even if they do not receive the full credit, but you will need to file a 2020 or 2019 tax return to claim it. Here’s everything you need to know.
What is the child tax credit?
The child tax credit is a financial benefit for tax filers with dependent children. Under the American Rescue Act, the maximum tax credit per child increased from $2,000 to $3,600, with half of that amount paid out as monthly advance payments starting July 15 through December 2021. This was designed to provide immediate financial relief to families during the pandemic. The other half of the credit can be claimed when filing your 2021 taxes.
How can I qualify for monthly child tax credit payments?
The IRS states that over 88% of families in the U.S. qualify for the credit. However, the payment amount you receive depends on your household income for 2020 and the ages of your children. A child under six years old qualifies for a $3,600 credit, while a child over six qualifies for $3,000. Additionally, dependents aged 18 and full-time college students between 19 and 24 also qualify for $500, according to CNET.
To receive the full credit, taxpayers must have an adjusted gross income below the following thresholds on their 2020 tax return (if not filed, the IRS will use the 2019 return):
$75,000 for individual filers
$112,500 for heads of household (a proposed bill could increase this limit to $150,000)
$150,000 for married couples filing jointly, and widows/widowers
If your income exceeds these limits, the credit will phase out at a rate of $50 per $1,000 of income above the threshold, according to WSJ. (CNET also provides a helpful calculator, here).
How do I receive my monthly child tax credit checks now that I qualify?
If you’ve already filed your 2020 tax return, there’s no action required on your part—the payments will be automatically sent via direct deposit (if you’ve already set that up with the IRS) or by check through the mail.
However, since this is a temporary credit for the 2021 tax year, you’ll need to file a tax return for either 2020 or 2019 in order to receive the payment, as that’s the only way to prove to the IRS that your child qualifies for it. This is particularly crucial if you’re a non-filer under 65 earning less than $12,000 a year, since you wouldn’t typically be required to file a tax return for earnings below that threshold. To avoid missing out on thousands of dollars, it’s worth filing a tax return anyway (the IRS has promised to assist with outreach on this issue).
Will I need to pay back the monthly child tax credit if I earn too much money?
It’s essential to keep in mind that these advanced monthly payments are based on projections. Since the credit is an advance based on your estimated 2021 income (based on your 2019 or 2020 tax return) and the number of children you have currently, either of these could change later in the year. This means you may qualify for more money if you have another child before the year ends, which can be claimed on your 2021 tax return. However, the downside is that if your income increases or your situation changes in ways that push you over the income threshold, you might have to repay some or all of the advanced payments when you file your 2021 taxes.
To address this issue, the IRS is creating an online portal that will allow you to update your income, marital status, and the number of eligible children throughout the year. Alternatively, you can choose to opt out of the monthly payments entirely and instead claim a lump sum credit on your 2021 tax return. The portal is expected to be available before July 1.
