The Internal Revenue Service said Monday it has begun sending letters to more than 36 million families likely eligible to receive payments starting in July under the newly expanded Child Tax Credit—one of the major antipoverty initiatives in President Biden’s stimulus plan—and announced the dates those payments are expected to hit bank accounts.
Biden’s $1.9 trillion American Rescue Plan significantly expanded the Child Tax Credit for the 2021 tax year: It will now provide eligible parents with a $3,000 credit for every child aged 6 to 17 and $3,600 for every child under age 6 (up from $2,000 per dependent child up to age 16).
Individuals earning up to $75,000 a year, heads of household up to $112,500 a year, and joint filers up to $150,000 a year are eligible to receive the full amount of the credit.
The amount of the payments will phase out by $50 for every $1,000 in adjusted gross income above those thresholds. The IRS will use information from 2019 or 2020 tax returns or the agency’s online Non-Filers tool to determine eligibility.
Some of that money will come in the form of advance payments, via either direct deposit or paper check, of up to $300 per month per qualifying child on July 15, August 13, September 15, October 15, November 15 and December 15, the IRS said Monday.
Families can claim the remainder of the credit on the 2021 tax returns they file next spring.
$4,380. That’s the average benefit over 90% of families with children will receive under the expanded credit, according to the Tax Policy Center.
The American Rescue Plan also made the Child Tax Credit fully refundable for 2021. It was previously refundable only up to $1,400 per child, and families needed to earn at least $2,500 to be eligible for any of that money. That means many low-income families or families with no income at all that would have been ineligible for some or all the old credit (because they didn’t earn enough to owe taxes to qualify) can receive the full benefit in 2021.
What To Watch For
The IRS said it will send a second letter to eligible families with information about the estimated monthly payments they can expect to receive. The IRS is also expected to open an online portal where families can check their eligibility, update information about income and qualifying children, check the status of their payments and opt out of the program.
The White House has proposed extending the expanded Child Tax Credit for another five years under the American Families Plan (which has yet to be taken up by Congress), but many progressives want to make the expanded credit permanent. “No recovery will be complete unless our tax code provides a sustained pathway to economic prosperity for working adults and families,” 41 Democratic senators wrote in a letter to President Biden in March. “Your forthcoming Recovery Plan is the opportunity we have to make the expansions of these credits permanent.“
I’m a breaking news reporter for Forbes focusing on economic policy and capital markets. I completed my master’s degree in business and economic reporting at New York University. Before becoming a journalist, I worked as a paralegal specializing in corporate compliance.
There have been important changes to the Child Tax Credit that will help many families receive advance payments starting this summer. The American Rescue Plan Act (ARPA) of 2021 expands the Child Tax Credit (CTC) for tax year 2021 only.
The expanded credit means:
- The credit amounts will increase for many taxpayers.
- The credit for qualifying children is fully refundable, which means that taxpayers can benefit from the credit even if they don’t have earned income or don’t owe any income taxes.
- The credit will include children who turn age 17 in 2021.
- Taxpayers may receive part of their credit in 2021 before filing their 2021 tax return.
For tax year 2021, families claiming the CTC will receive up to $3,000 per qualifying child between the ages of 6 and 17 at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. Under the prior law, the amount of the CTC was up to $2,000 per qualifying child under the age of 17 at the end of the year.
The increased amounts are reduced (phased out), for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.
Advance payments of the 2021 Child Tax Credit will be made regularly from July through December to eligible taxpayers who have a main home in the United States for more than half the year. The total of the advance payments will be up to 50 percent of the Child Tax Credit. Advance payments will be estimated from information included in eligible taxpayers’ 2020 tax returns (or their 2019 returns if the 2020 returns are not filed and processed yet).
The IRS urges people with children to file their 2020 tax returns as soon as possible to make sure they’re eligible for the appropriate amount of the CTC as well as any other tax credits they’re eligible for, including the Earned Income Tax Credit (EITC). Filing electronically with direct deposit also can speed refunds and future advance CTC payments.
Eligible taxpayers do not need to take any action now other than to file their 2020 tax return if they have not done so.
Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments. Taxpayers will also have the opportunity to update information about changes in their income, filing status or the number of qualifying children. More details on how to take these steps will be announced soon.
The IRS also urges community groups, non-profits, associations, education groups and anyone else with connections to people with children to share this critical information about the CTC. The IRS will be providing additional materials and information that can be easily shared by social media, email and other methods.
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