The IRS and the Treasury recently started disbursing advance monthly payments of the expanded Child Tax Credit in a program that aims to lift millions of families out of poverty.
Approximately $15 billion is being directly deposited to the accounts of parents of nearly 60 million children, or mailed to them, under a provision of the American Rescue Program as part of the administration’s push to aid families coping with the fallout from the COVID-19 pandemic.
Proponents hope the expanded Child Tax Credit will cut childhood poverty in half and lift more than 5 million children out of poverty this year, but detractors have criticized the program as wasteful spending when the economy is already booming this year.
“For the first time in our nation's history, American working families are receiving monthly tax relief payments to help pay for essentials like doctor’s visits, school supplies, and groceries,” said Treasury Secretary Janet L. Yellen in a statement Thursday. “This major middle-class tax relief and step in reducing child poverty is a remarkable economic victory for America — and also a moral one.”
The American Rescue Plan expanded the Child Tax Credit for 2021 to offer more help to more families. The credit increased from $2,000 per child in 2020 to $3,600 for each child under the age of six. For each child ages six to 16, the credit has increased from $2,000 to $3,000. It also makes 17-year-olds eligible for the $3,000 credit. To provide money to families faster, the IRS is sending out half of the 2021 Child Tax Credit this year in monthly payments.
The first wave of Child Tax Credit payments was on July 15.
The IRS is issuing the advance Child Tax Credit payments on July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15, and Dec. 15. The Biden administration and Democrats in Congress hope to extend the program beyond this year, and the administration’s budget proposed to offer the expanded child for the next four years.
What income levels and situations qualify for Child Tax Credit payments?
The income thresholds for receiving the full amount for taxpayers who are married filing jointly are up to $150,000, or $112,500 for head of household, and up to $75,000 for a single person. The payments start to phase out at income levels above that, but go all the way up to $440,000 for married couples filing jointly, and $240,000 for single taxpayers and those filing as head of household.
“The income levels, one could argue, are fairly high,” said Tim Speiss, a partner in accounting firm EisnerAmper’s personal wealth group. “Depending on your circumstances, $150,000 for a married couple is not a small amount. This is a very broad program.”
Up to 90% of taxpayers qualify for at least a partial payment. “Imagine if one day families with children under six will receive $300 per child per month,” said Rep. Rosa DeLauro, D-Connecticut, who spearheaded the program, during a press conference Wednesday. “Children six to 17 will receive $250 per child per month. How life-changing! Families are dealing with extraordinary expenses: food, childcare, diapers, health care, and clothing. It stretches to the middle class, with the same amount to 90% of kids. It’s an equalizer and it cuts child poverty by more than half. Child poverty costs this country more than $1 trillion every year, and a Child Tax Credit saves $8 for every $1 spent. It is the fiscally responsible thing to do, and I hope this is the beginning of a new framework of support for working families, a systemic change.”
“This is the biggest investment in kids, families, and the middle class since Lyndon Johnson was president over 50 years ago,” said Sen. Michael Bennet, D-Colorado. “This is the most progressive change to America’s Tax Code ever. This is the single biggest blow to childhood poverty in American history.”
The Treasury estimates that more than 26 million children whose families would have received less than the full Child Tax Credit under the previous rules because their incomes were too low will now receive the full, expanded credit. For a married couple earning a combined $60,000 per year and two children under the age of six, their Child Tax Credit will equal $7,200, and this year’s expansion translates into an additional $3,200 per year in tax relief. For a married couple earning a combined $24,000 per year and two children under the age of six, they will receive a total credit of $7,200. Because of the changes in the American Rescue Plan, their credit increased by $4,400. Not only did the amount of the credit increase, but prior to the American Rescue Plan, the full credit was not available to them because it was not refundable.
Taxpayers who filed an income tax return in either 2019 or 2020 and who claimed an eligible child, or who signed up to get an Economic Impact Payment and claimed an eligible child last year, typically do not need to take any action to receive their payments.
Approximately 86% of the families who received payments Thursday did so by direct deposit, and the remainder will receive checks in the mail. The payments will continue to be made on the 15th of each month (unless the 15th falls on a weekend or holiday, in which case the payment will be made the preceding business day).
Low-income families with children who are eligible for the tax credits include those who don’t make enough money to be required to file federal income taxes. This first set of payment recipients automatically included families that signed up for Economic Impact Payments — also known as stimulus checks — last year, even if they don’t usually file a tax return because their income is below the federal filing requirement.
For non-filers and latecomers.
For those who don’t file tax returns, the IRS has set up a Non-Filers tool where they can submit their information, similar to the tool used to register last year for the first round of Economic Impact Payments. It can be found on this web page, along with other information about the Child Tax Credit.
The Treasury estimates that families with more than 720,000 children who otherwise wouldn’t have received a Child Tax Credit will now receive payments starting this month because they signed up for Economic Income Payments last year. Eligible families who did not sign up in time to receive their Child Tax Credit in this first round of payments can receive increased monthly payments to catch up for the previous months after they sign up.
Goals for the future.
Democrats hope to extend the expanded Child Tax Credit beyond this year. “Our position has been clear: We must make the Child Tax Credit permanent,” said DeLauro, who chairs the powerful House Appropriations Committee. “We have a real opportunity here, not just to throw money at a problem, but to build an architecture for the future and use this as a moment to lift up all children and families so that every person, no matter their background, has the opportunity to contribute and to succeed.”
But the effort to extend the credit is likely to meet skepticism from Republican lawmakers, who have already criticized the spending in the $3.5 trillion package introduced by the Biden administration and Senate Democrats.
“The Republican Party and some in the Democratic Party are very concerned about some of the administration’s relief packages, that they might be too much,” said Speiss. “It takes passage of legislation to implement these types of provisions. It’s very possible this program may not exist in 2022. Already the administration is pushing on the amount of social spending it’s undertaken, effectuated by the pandemic. There are a lot of Americans that are hurting, but we could be looking at a different environment in 2022.”
Advance Child Tax Credit payments are not reported as income.
According to the IRS, the Advance Child Tax Credit payments are not income and will not be reported as income on your 2021 tax return. Advance Child Tax Credit payments are advance payments of your tax year 2021 Child Tax Credit.
But there are conditions.
They go on to state: However, the total amount of advance Child Tax Credit payments that you receive during 2021 is based on the IRS’s estimate of your 2021 Child Tax Credit. If the total is greater than the Child Tax Credit amount that you are allowed to claim on your 2021 tax return, you may have to repay the excess amount on your 2021 tax return during the 2022 tax filing season. For example, if you receive advance Child Tax Credit payments for two qualifying children properly claimed on your 2020 tax return, but you no longer have qualifying children in 2021, the advance Child Tax Credit payments that you received based on those children are added to your 2021 income tax unless you qualify for repayment protection. For more information regarding your eligibility for repayment protection, and how to reconcile your advance Child Tax Credit payments with your Child Tax Credit on your 2021 tax return, see Topic H: Reconciling Your Advance Child Tax Credit Payments on Your 2021 Tax Return.
For this reason, you may wish to unenroll from receiving advance Child Tax Credit payments. You can unenroll through the Child Tax Credit Update Portal (CTC UP). For more information regarding the CTC UP, see Topic F: Updating Your Child Tax Credit Information During 2021.
If you're due a child tax credit payment, please be aware, I have no means to tell you when you'd be getting it. But if your circumstances have changed and you need to reconcile your taxes, my team and I are always available to consult with you on these and other tax matters. You can contact me by one of the methods below in the blue box, or email me at Larry@TaxProblemSolver.com and we can dive into your specific issues and solve them. You can also click here to book a free consultation.
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