Parents can look forward to some extra cash beginning July 15, as the IRS rolls out an expanded tax break for millions of families.
Parents will receive a monthly payment of as much as $300 per child for little ones 5 years old and younger.
The payout for the newly revised Child Tax Credit is up to $250 per month for each child ages 6 through 17.
The scope of the Child Tax Credit has been expanded significantly to cover children ages 17 and younger, instead of stopping at 16.
About 39 million households — which would cover 88% of children in the United States — are set to begin receiving monthly payments without doing anything, the Internal Revenue Service said Monday morning.
The IRS has information from 2020 tax returns to use to issue the advance payments for the Child Tax Credit for 2021.
Families would receive payments for half of this year and then must file a tax return next year to receive the rest of the money.
But many families who typically do not need to file a return based on a low income are being encouraged to file a 2020 return soon to provide the IRS with enough information to send them money each month for the Child Tax Credit.
“While most taxpayers will not be required to take any action to receive their payments, Treasury and the IRS will continue outreach efforts with partner organizations over the coming months to make more families aware of their eligibility,” the IRS stated.
A new feature of the Child Tax Credit is the advance monthly payouts, which are to run from July through December.
The goal is to help families pay bills now, instead of waiting for money to arrive next year.
Families will receive that money by direct deposit, a check or prepaid debit cards, according to the IRS.
IRS and U.S. Treasury said the monthly payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday.
“Families who receive the credit by direct deposit can plan their budgets around receipt of the benefit,” according to an IRS statement.
The expanded credit is worth up to $3,000 per child a year for children ages 6 to 17.
The credit offers an extra $600 — providing up to $3,600 — for each child 5 and younger. Filing a tax return, experts say, lets the IRS know where to send your payment and how many children you have. The amount was temporarily increased under the American Rescue Plan Act for tax year 2021.
The American Rescue Plan is projected to lift more than 5 million children out of poverty this year, cutting child poverty by more than half, according to the IRS statement.
The IRS also noted that about 165 million Economic Impact Payments, valuing a total of $388 billion, have been issued since March 12 as a part of the American Rescue Plan.
The Child Tax Credit itself is complicated and has many rules.
If divorced, for example, only one parent can claim the credit for a child. The child must live with you for at least six months out of the year.
Under the old rules, the Child Tax Credit offered up to $2,000 for each child age 16 and younger but refunds were limited to $1,400 per child.
The Child Tax Credit for 2021 will be fully refundable, while the Child Tax Credit for 2020 was only partially refundable, said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
Not every family will qualify for the larger Child Tax Credit or perhaps any credit at all.
The phaseout range for the Child Tax Credit for 2020 starts at modified adjusted gross income of $400,000 for married filing jointly and $200,000 for other filers.
“This remains the phaseout range for the Child Tax Credit for 2021 for the basic $2,000 credit,” Luscombe said.
But for 2021, there could be an extra amount of money on top of the $2,000 for many families who have more modest incomes.
If you’d qualify, you’d get up to an additional $1,000 for children ages 6 through 17 and an additional $1,600 for children up through age 5.
You’d qualify for the entire amount of the larger credit if you are single and your income is less than $75,000. Or, if you are single and file taxes as a head of household, your income must be under $112,500 to qualify for the full benefit.
If married and filing a joint return, you’d qualify for the full benefit if your combined income is under $150,000.