In July, families eligible for the federal Child Tax Credit will begin receiving monthly payments instead of waiting to receive an annual credit when they file their 2021 tax returns. One parent of two small children thinks the change will make a significant difference for low-income families: “When you get a big one-time payment like a tax refund, it seems like a windfall to buy something extra. But a monthly payment will be a regular part of your budget, so you’re more likely to use it for basic things like groceries or childcare.”
Her take on this provision of the American Rescue Plan is in line with what the Biden administration is hoping to accomplish. The plan increases the maximum Child Tax Credit for 2021 to $3,600 for each child under the age of 6 and $3,000 for each child aged 6 through 17. The maximum credit is available to taxpayers with a modified adjusted gross income (AGI) of 75,000 or less for singles, $112,500 or less for heads of household, and $150,000 or less for married couples filing jointly and qualified widows and widowers.
The monthly payments that begin July 15 will go to eligible families who filed either a 2019 or 2020 federal income tax return. Payments also are intended to go to people who don’t normally file tax returns. This includes those who used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment or who registered for the advance Child Tax Credit this year using the new Non-Filer Sign-up Tool.
Eligible families who took any of these actions do not need to do anything else to get their payments. If you didn’t do any of these, go to the IRS Child Tax Credit Eligibility Assistant to quickly determine whether you qualify for the payments.
If you qualify, and you haven’t yet filed a 2020 (or 2019) tax return, the IRS urges you to do so as soon as possible in order to receive any advance payment you’re eligible for. Filing soon will also make sure the IRS has your correct bank account information and current details about qualifying family members. For many people, the fastest and easiest way to file a return is by using Free File at IRS.gov.
You can also verify your eligibility for the monthly payments by going to the Child Tax Credit Update Portal. You can use the portal if you want to opt out of receiving the monthly payments and elect to receive a lump sum when you file your tax return next year. Through the portal, you will be able to check the status of your payments and update your mailing address and bank account information.
Because the monthly payments start in July, they will add up to half of the total 2021 Child Tax Credit. Eligible families will still receive the other half when they file their 2021 tax returns.
What if you automatically receive the payments, but then determine you will not qualify this year? You will need to unenroll or end up needing to pay back any excess funds. The money you receive will reduce any tax refund owed to you or increase your income tax due next April.
For families who commonly don’t receive a large tax refund, the Child Tax Credit may offset their tax bill and reduce the amount they owe. In these situations, receiving the money in advance and spending it could create an unexpected tax bill in April. It is important that each family carefully assess whether it’s best to take the monthly payments or opt out and wait until they file their taxes.