Many of our S&K clients are parents of eligible dependents and qualify for the child tax credit which President Biden included in his American Families Plan earlier this spring. This plan offers parents a credit of up to $3,600 per eligible child, and payments will begin around July 15 – either by direct deposit or mail. However, this child tax credit is structured a bit differently than those offered in previous years. So, S&K has assembled a list of questions and answers that may help you better understand this important program.
When will the first payments arrive?
The first payment will arrive on July 15, with ensuing payments arriving monthly around the same time. Dates could vary slightly if paper checks are received via snail mail.
How much will be paid?
Depending upon your income level, maximum payments of $3,600 for children 5 years and younger will be paid out in installments of $300/per child per month through December. A maximum of $3,000 for children ages 6-17 will be paid out in monthly installments of $250/per child, per month. Parents of 18-year-olds will receive a maximum payment of $500, in a one-time check. Finally, parents of full-time college students aged 19-24 will also be eligible for a $500 one-time check.
For the first two groups mentioned, these payments will be made monthly through December – with the remainder being reconciled with your 2021 tax return during filing in 2022.
What are the income requirements?
The amount parents receive will phase out for people with higher income levels: singles earning more than $75,000 per year; heads of households earning more than $112,500 per year, and married couples earning more than $150,000 a year. Your child tax credit payments will begin to phase out by $50 for every $1000 of income over those threshold amounts.
What form will the payments take?
Your child tax credit money will likely arrive the way your stimulus money did. Most will come via direct deposit, but the IRS will also send out paper checks and funds on debit cards.
Does anything “extra” need to be done?
Payments will be automatic for those who filed their 2020 tax refunds by the May 17 deadline. Nonfilers will need to file a 2020 tax return to get the credit, even if they don’t usually submit tax returns. This will let the IRS know how many dependents are in the household who also count toward child tax credit benefits.
When will the two tax credit portals be opened?
The IRS will launch two online portals by July 1. The first is for people who don’t normally file income tax returns, and will let these nonfilers provide information so they can receive benefits.
The second portal will allow families to update their information if their circumstances have changed, for example, if a new child arrives in 2021 who is not reflected on the 2020 tax return. This portal can also be used to opt out of the monthly payments and receive the entire amount at one time when taxes are filed in 2022
How is this child tax credit different from years past?
First of all, the payment will not arrive all at once. The credit means that the amount you owe in your 2021 taxes will be reduced by the “credit” you gain from your eligible dependents. That could either reduce your payment to the IRS for your 2021 taxes (filed in 2022) or else increase your tax refund. Normally, you would receive the credit as a tax refund in 2022, but this plan brings the money to you sooner, which is why the checks will start coming in 2021 as “advanced payments.”
This also explains why your 2021 child tax credit is split into two parts. The first part, in 2021, is the advance payment that you can start using right away. The second part will apply to your 2021 taxes, when you file in 2022.
Secondly, this amount in an increase over the $2,000 maximum credit per qualifying child under the age of 17 that was offered in years past.
Do newborns and newly-adopted children count?
Yes – if you have a baby or adopt a child in 2021 he or she will count toward the $3600 credit payment.
Instead of monthly checks, can monthly payments be combined into one large payment in 2022?
YES! This option can be chosen in the future portal, being launched in July. This is an especially good option for those worried about the IRS overpaying you, and then having to repay that money next year. This would mean receiving a larger total in your tax refund or owing the IRS less money because the credit would be deducted from your total.
If parents receive more money than they are eligible for, does it need to be returned to the IRS?
YES! If this is the case, the money will need to be repaid. For example, if you and the other parent of your child (who is not your spouse) are both paid the child tax credit for the same dependent, one of you will need to return the money.
Additionally, when you file your 2021 tax return (in 2022), if your tax situation isn’t what the IRS has recorded in its system and you weren’t entitled to as much money as you received, you’ll have to return the payment. To avoid this inconvenience, make sure your information is updated before the payments start arriving; the future portal will allow you to make all necessary adjustments.