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The head of the IRS shared some good news for American parents this week.
Parents eligible for the expanded Child Tax Credit will begin receiving advance payments in July, IRS Commissioner Charles Rettig confirmed in testimony before the Senate Finance Committee on Tuesday.
Qualifying families will receive up to $3,600 per eligible child in 2021, a temporary expansion of the existing Child Tax Credit under the latest stimulus package passed in March. With this, you don’t have to wait until you file your 2021 tax return to receive the money — instead, you’ll receive half in periodic payments throughout the second half of the year.
“We fully expect to launch July 1,” Rettig told the Senate Finance Committee this week. While the agency is still working out the details of how and when these payments will be distributed, Retting said he expects them to go out on a monthly basis between July and December 2021.
Here are more details about your eligibility, and what you can expect as the IRS prepares payments:
How Much Can You Get with the Child Tax Credit?
The amount you’ll receive will depend on your individual tax situation.
You can estimate your payment using your filing status and AGI (which you can find on the first page of your Form 1040 tax return); the number of dependent children you’ll have aged 5 and under on Dec. 31, 2021; and the number of children ages 6 to 17 on Dec. 31, 2021.
We did the math for four fictitious families to show the changes across a few different scenarios:
No. 1. Single Filer: One Child, Age 6
Joanna is a single mother who earns an AGI of $40,000. Her son will turn 6 before the end of 2021, so she qualifies for a total $3,000 Child Tax Credit.
No. 2. Married Filing Jointly: Two Children, Ages 17 and 12
Sonia and Jeff are parents to two daughters, ages 17 and 12. They earn an AGI of $120,000. They can expect to receive $6,000 total from the Child Tax Credit.
No. 3. Single Filer: Three Children, Ages 18, 15, and 5
Tim is a single dad who earns an AGI of $90,000. He has one daughter who will turn 18 before the end of 2021, and two sons ages 15 and 5. He can expect a total Child Tax Credit for 2021 of $5,850. If Tim claims his 18-year-old daughter as a dependent, he may also be eligible for an additional $500 via the Credit for Other Dependents (ODC), even though she doesn’t qualify for the Child Tax Credit.
No. 4 Married Filing Jointly: One Child, Age 1
Kiara and Suzanne are new parents who earn an AGI of $200,000. Their income puts them beyond the income limits for the expanded credit amount, but they are still eligible for a $2,000 Child Tax Credit for 2021.
What Is the Expanded Child Tax Credit?
Previously, the Child Tax Credit allowed taxpayers with dependent children to claim up to $2,000 per eligible child under age 17. The amount decreased for individuals with a modified Adjusted Gross Income (AGI) above $200,000 or joint filers with a modified AGI above $400,000.
For tax year 2021, eligible families will receive more money per child — and they’ll start getting it before filing this year’s tax returns in 2022.
Taxpayers can claim up to $3,600 per child 5 years or younger, and up to $3,000 per dependent child ages 6 through 17. There are also new thresholds for when the credit begins to phase out based on income. These thresholds are the same as the new income limits established for the latest third round of stimulus checks:
|Single||Head of Household||Married Filing Jointly|
|Maximum AGI to qualify for full expanded Child Tax Credit||$75,000||$112,500||$150,000|
If your AGI is above these amounts, the credit phases out in $50 increments for every $1,000 above the threshold. For example, a mom with one eligible 4-year-old child who files individually and has an $80,000 AGI would qualify for a reduced $3,350 credit.
However, these phaseouts are limited to the increased $1,000 or $1,600 added under the new law. Even if your income phases you out of the expanded stimulus credit, you may still qualify to claim the regular Child Tax Credit up to $2,000, for which the same phaseouts used in previous years will apply.
The American Rescue Plan states that the new Child Tax Credits will be sent as “periodic” advance payments in equal amounts. You’ll receive half the total credit through these advance payments, and half when you file your 2021 tax return.
The law says the advance payments will take place between July 1, 2021, and Dec. 31, 2021, but the IRS hasn’t yet released its specific plan for payment distribution. Rettig told the Senate Finance Committee the IRS plans to send payments monthly.
More Changes Under the New Law
- Fully Refundable Credit: Unlike direct payments, tax credits like the Child Tax Credit are designed to reduce the amount of federal income taxes you owe. Previously, if you were eligible for a Child Tax Credit that exceeded what you owed in taxes, you would only receive up to $1,400 per child as a refund (not the full $2,000) — this is known as the Additional Child Tax Credit. Under the new law though, the credit is “fully refundable,” meaning you’ll still be eligible to receive the full credit you qualify for as a refund if you don’t owe any federal taxes.
- Minimum Earned Income: There was also a minimum earned income threshold of $2,500 to qualify for the refundable credit. These stipulations kept many low-income families from receiving the full credit. Now, there’s no minimum income requirement.
- Age Limits: Before, any child who turned 17 before the end of the calendar year was no longer eligible for that year’s credit, even if they were still claimed as a dependent. The American Rescue Plan increased that age to 18, so now 17-year-old dependents may still qualify for up to $3,000 each.
What You Should Do Now
File your 2020 tax return by the extended May 17 tax deadline, even if you’re not typically required to file based on income.
The money you’ll receive later this year is an advance payment of the credit you’ll be eligible for in 2021, which you’ll file a return for next spring. The IRS will use your most recent return to estimate your payment, then issue the advance credit based on that.
Payments are expected to distribute automatically when the system is set up, so having your latest tax information on file, as well as up-to-date bank information will help you receive the credits you qualify for as quickly as possible.
“Tax returns get us the information so that we know the amount of the credits to provide by law … and certainly current information is better than old information,” Rettig said. “In addition, current banking information is extremely critical.”
Online Tool for Child Tax Credit
The American Rescue Plan says the IRS must develop an online tool for taxpayers to make changes to their information on file with the IRS that may affect the amount they receive in advance payments. Under the law, this tool will give taxpayers the ability to:
- Opt out of advance payments
- Notify a change in the number of qualifying children (including the birth of a child)
- Change their marital status
- Note a significant change in income which may affect their credit amount
The IRS plans for this tool to be available when payments begin distribution in July, Rettig said in the Senate hearing. “It is going to be as user-friendly as possible,” he said, but cautioned that like other IRS online tools (such as the “Where’s My Payment?” tool for stimulus payments) there may be some troubleshooting required in the beginning to make it more accessible.