Child Tax Credit Payments are Here. Does Your Family Qualify?

July 14, 2021

Millions of American families are about to start getting monthly payments from the government.

It’s all part of the American Rescue Plan Act, which not only boosts the Child Tax Credit to $3,000 per qualifying child (plus an extra $600 for any children under the age of 6), but it also changes how parents get the money.

Rather than waiting until tax time, the IRS is going to pay half of the credit up front in the form of six monthly payments, starting on July 15.

If you qualify for the “child allowance” payments (which mostly depends on how much money you make), you won’t need to do anything new to get them. The money will be direct-deposited into your Bank account, or sent in the mail via check or debit card — much the same way the IRS did for stimulus checks during the COVID-19 pandemic.

Families should watch for a letter in the mail from the IRS containing their estimated monthly payment amount. But even if you don’t receive a letter, your family might still be eligible. Keep reading to learn more about how the new child tax credit works:

What is the Child Tax Credit?

The Child Tax Credit (CTC) was introduced by lawmakers in 1998 to give an income boost to U.S. parents or guardians of children and other dependents. You normally claim the credit on the Schedule 8812 Form when you file your taxes.

In March 2021, the American Rescue Plan Act was signed into law, expanding the CTC benefit (for one year, at least) and giving additional money in the form of monthly child tax credit payments.

How much is the Child Tax Credit for 2021?

Families with qualifying children will receive $3,000 for each child age 6 to 17 (and $3,600 for each child under 6).

The law requires nearly half of the credit to be sent in advance, which is why the IRS is sending out monthly payments from July 2021 to December 2021. These payments will generally equal $300 per month for each child age 5 and below, and $250 per month for each 6 to 17-year-old.

Some families will get less, however, because there are income limits to calculate exactly how much each household will receive. 

Who qualifies for the new Child Tax Credit?

Not all families will get the higher child tax credit, but most will. To receive the additional money and advance payments, you (and your spouse) must meet the following qualifications:

• Be a U.S. resident.
• Have a 2019 or 2020 tax return, or have signed up to receive an Economic Impact Payment (stimulus check) during the COVID-19 pandemic.
• Have a qualifying child who is under the age of 18 as of Dec. 31, 2021. This includes any children born on or before Dec. 31, 2021.
• Make less than $75,000 per year (or $112,500 for heads of household, or $150,000 for married couples filing jointly).

If you make more money than the income limit, your credit will phase out by $50 for every extra $1,000 you make — down to the original $2,000 credit.

For example, if a married couple with a toddler makes $170,000, they won’t get the full $3,600 credit. Since their Adjusted Gross Income (AGI) is $20,000 above the threshold, their credit is reduced by $1000 ($50 x 20), resulting in a final credit of $2,600.

If you didn’t file a tax return and never received a stimulus check, but you meet all of the other requirements listed above, you still qualify to receive a Child Tax Credit payment! But, you'll need to register for Child Tax Credit payments using the Non-Filer Sign-Up tool on the IRS website.

Can higher income families still get the old Child Tax Credit?

Yes, families with higher incomes can still receive the old $2,000 child tax credit under the previously existing rules. Eligibility starts to phase out at $200,000/year for singles and $400,000/year for married couples.

What else has changed between the new and old CTC?

Basically, there are three main changes to the Child Tax Credit: 1) it's bigger, 2) more children qualify and 3) part of it is payable in advanced monthly payments beginning in July. 

As we’ve already said, the new law temporarily increases the normal credit to $3,000 from $2,000 per qualifying child age 6 to 17, and up to $3,600 for children age 5 and under. Before, the maximum qualifying age was 16.

In addition, the Child Tax Credit is now available regardless of a family’s income (prior rules required parents to have at least $2,500 of earned income to get the credit). The credit is also fully tax refundable (before, the refundable amount was capped at $1,400). 

These changes will last for one year, at least. It’s unclear whether or not lawmakers will permanently expand the Child Tax Credit, because that would require another round of legislation.

When will Child Tax Credit payments be released?

The IRS will send out advance Child Tax Credit payments to eligible families on the following dates:

• July 15, 2021
• August 13, 2021
• September 15, 2021
• October 15, 2021
• November 15, 2021
• December 15, 2021

It could take longer for your payment to arrive if it's coming through the physical mail.

Do I have to accept the monthly payments?

No, you can opt out of advance monthly payments and instead claim the full credit next year when you file your taxes. However to do this, you need to use the Child Tax Credit Update Portal on the IRS website.

Why would you choose to skip the monthly payments? The credit will be the same amount over time, but getting a bigger lump sum later could potentially protect you if you owe a surprise amount of money to the IRS when you file your taxes.

What if I need to update my information? 

Maybe your income will be significantly different this year; or maybe you've moved, switched Banks, had another child or gained another dependent. In any case, the IRS says you can update your information by using the Child Tax Credit Update Portal and clicking the “Manage Advance Payments” button.

We'll keep this page updated as more information unfolds.

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IMPORTANT NOTE: This article is for information purposes only, and Security National Bank is not a tax adviser company. There may be additional guidelines and information, regarding your personal tax situation, not included in this article. For more information, you should always contact your tax adviser or visit the IRS website.