The updated Child Tax Credit, as part of the most recent stimulus package, is scheduled to start in July, will millions of parents eligible for monthly payments.
(CBS Detroit) — The updated Child Tax Credit (CTC) will mean a sort of monthly stimulus check for most parents and guardians. The Internal Revenue Service (IRS) has sent letters to the approximately 36 million families that may qualify for advance CTC payments. The Treasury Department and IRS have also announced the official July start date for the updated credit, as laid out in the American Rescue Plan. But future recipients may still be unsure how much they can expect The Child Tax Credit was established over two decades ago to help qualified taxpayers with the cost of raising children. But the most recent $1.9 trillion COVID relief package seeks to give parents a little more support. The credit will now be worth as much as $3,600 per kid for the year. And money that was once was claimed only at tax time will go out in installments, at least in 2021. How much will those installments be, and when will they arrive? Let’s find out. For parents of children up to age five, the IRS will pay a total of $3,600, half as six monthly payments and half as a 2021 tax credit. That changes to $3,000 total for each child ages six through 17. The IRS will make a one-time payment of $500 for dependents age 18 or fulltime college students up through age 24. Payments will be based on the modified adjusted gross income (AGI) reflected on a parent or parents’ 2020 tax filing. (AGI is the sum of one’s wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.) The amount phases out at a rate of $50 for every $1,000 of annual income beyond $75,000 for an individual and beyond $150,000 for a married couple. The benefit will be fully refundable, meaning it will not depend on the recipient’s current tax burden. Qualifying families will receive the full amount, regardless of how much — or how little — they owe in taxes. There is no limit to the number of dependents that can be claimed. As an example, suppose a married couple has a four-year-old child and an eight-year-old child and showed an annual joint income of $120,000 on their 2020 taxes. The IRS would send them a monthly check for $550 starting in July. That’s $300 per month ($3,600 / 12) for the younger child and $250 per month ($3,000 / 12) for the older child. Those checks would last through December. The couple would then receive the $3,300 balance — $1,800 ($300 X 6) for the younger child and $1,500 ($250 X 6) for the older child — as part of their 2021 tax refund. Parents of a child who ages out of an age bracket will be paid the lesser amount. That means if a five-year-old turns six in 2021, the parents will receive a total credit of $3,000 for the year, not $3,600. Likewise, if a 17-year-old turns 18 in 2021, the parents will receive $500, not $3,000. An income increase in 2021 to an amount above the $75,000 ($150,000) threshold could lower a household’s Child Tax Credit. The IRS recently confirmed that it will set up a portal to allow claimants to adjust their income and custodial information, thus lowering their payments. Failure to do so could increase your tax bill or reduce your tax refund once 2021 taxes are filed. Recipients will also be able to use the portal to opt out of periodic payments in favor of a one-time credit at tax time. The portal should be up and running before July 1. Eligibility requires that the dependent be a part of the household for at least half of the year and be at least half supported by the taxpayer. A taxpayer who makes above $95,000 ($170,000) — where the income limits phase out — will not be eligible for the expanded credit. But they can still claim the existing $2,000 credit per child. Families who receive a qualifying letter will subsequently receive a second letter estimating the amount. “Big changes to the way that the tax credit is structured,” says Stephen Nuñez, the Lead Researcher on Guaranteed Income at the Jain Family Institute, an applied research organization in the social sciences. (Nuñez studies cash welfare policy, that includes field work to answer policy-relevant questions about the social safety net.) “Much more generous, fully refundable, no longer any work requirement…” Child Tax Credit payments will be automatically deposited on a monthly basis starting July 15. Each subsequent payment will be issued on the 15th of the month through December of 2021. If the 15th is a weekend or holiday, the money will arrive on the closest prior business day. (August 15, for example, falls on a Sunday, so that month’s payment will arrive August 13.) The remaining balance will be issued as a credit when the recipient files their 2021 taxes. Most of those who are eligible will not have to do anything to receive payments. The payments will just start based on the information the IRS already has on file. The revised Child Tax Credit is scheduled to apply to 2021. The rules of reconciliation, which Democrats used to push through the stimulus package containing the expanded credit with a simple majority, don’t allow for deficit spending. Legislation must be deficit-neutral or deficit-reducing for the year, as well as for the next five years and 10 years. The thinking was that political pressure from supporters of a widely popular program will force Congress to extend it in the years to come. Biden has since come out in support of extending the enhanced credit until 2025 as part of his American Families Plan.
