More than 36 million families will start getting letters from the Internal Revenue Service about receiving monthly Child Tax Credit payments from July through December.
The American Rescue Plan, signed into law March 11, made key but temporary changes to the tax credit, such as offering more money to those who qualify and making the credit available for qualifying children who turn age 17 in 2021.
Another important change: Families can start getting money soon — instead of waiting until later next year. Many taxpayers would be able to receive half of their estimated 2021 Child Tax Credit in monthly installments for the rest of this year.
The IRS said the letters are going to families who may be eligible based on information they included in either their 2019 or 2020 federal income tax return. The letters also would go to those who used the Non-Filers tool on IRS.gov in 2020 to register for an Economic Impact Payment.
A second letter is going to be sent in the future to eligible families to spell out a specific estimated dollar amount of their monthly payment, which begins July 15.
Receiving a monthly payment will cut into how much you might receive as a lump sum tax refund when you file your 2021 federal income tax return next year.
The IRS plans to roll out a special tool in the future that would allow families to opt out of the monthly payments. If you’d choose to opt out of the advance payments, you’d instead receive the full amount of the credit when filing a 2021 return next year, again if you qualify. Look for more online tools from the IRS ahead.
This complex rollout of extra money to help families will demand that the IRS get as much updated information as possible via yet to be opened portals.
In the future, the plan calls for enabling individuals and families to visit irs.gov and use the “Child Tax Credit Update Portal” to notify the IRS of changes in income, filing status, or number of qualifying children. Families also would be able to update their direct deposit information; and make other changes to ensure they are receiving the right amount as quickly as possible.
These portals, though, are not yet available. See the special Advance Child Tax Credit 2021 page at IRS.gov/childtaxcredit2021 for updates. No specific date was given for that rollout. Most families do not need to take any action to get a monthly payment.
The IRS will calculate the payment amount based on the 2020 tax return. But the IRS said it could use the 2019 return, if the 2020 return has not yet been filed or it has not yet been processed. The monthly payments would arrive by direct deposit or check, the IRS said Monday.
Eligible families will receive up to $300 per month for each qualifying child age 5 and younger. The monthly payout is up to $250 per month for each qualifying child ages 6 to 17. The advance payments would be issued by the IRS on the 15th of the month, each month from July through December.
The IRS is urging those who haven’t yet filed their 2020 return — or 2019 return — to do so as soon as possible so they can receive any advance payment.
Families who are experiencing homelessness and rural poor people, as well as other underserved groups, might not typically file a tax return based on their low income. But the IRS is encouraging people who don’t normally file, but have children, to file to get money from the credit.
Eligible taxpayers are taxpayers who have a main home in the United States for more than half the year. U.S. military personnel stationed outside the United States on extended active duty are considered to have a main home in the U.S.
Advance payments will not be reduced or offset for overdue taxes or other federal or state debts that taxpayers or their spouses owe.
Taxpayers will claim the remaining child tax credit based on their 2021 information when they file their 2021 income tax return. Not all taxpayers qualify for the Child Tax Credit. How much you get will depend on your income, if you do qualify.
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 is the phaseout range for the Child Tax Credit for 2021 for the basic $2,000 credit.
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.
The IRS notes that above these income thresholds, the extra amount above the original $2,000 credit — either $1,000 or $1,600 per child — is reduced by $50 for every extra $1,000 in modified AGI.
An important change: The entire credit is fully refundable for 2021. That means that eligible families can get the extra money, even if they owe no federal income tax. Before this year, the refundable portion was limited to $1,400 per child.