The federal Child Tax Credit is slated to begin its first monthly cash payments on July 15, when the IRS will begin disbursing checks to eligible families with children ages 17 or younger. The new enhanced credit is part of a government effort to use the tax code to help low- and moderate-income families weather the ongoing challenges of the pandemic.
The tax system “has become a machine for social change,” said Mark Steber, Jackson Hewitt’s chief tax information officer. “The pandemic supersized that.”
The enhanced Child Tax Credit (CTC) is the latest use of the tax code to deliver money into millions of household bank accounts, following three rounds of direct stimulus checks that were, in fact, tax rebates. President Joe Biden’s American Rescue Plan authorized an expansion of the CTC, which has existed since the late 1990s, to more quickly provide monthly checks to low- and moderate-income households.
The expansion boosts the credit from $2,000 to $3,600 for each child under 6 or $3,000 for children ages 6 to 17. It also makes the CTC “refundable,” which means that people can get it even if they don’t owe federal income tax, which will increase the number of low-income households that qualify for the payments.
But not everyone will qualify. The CTC has an income cutoff of $75,000 for single taxpayers and $150,000 for joint filers to receive the full payment, with payments reduced by $50 for every $1,000 of income above those limits. The payments phase out entirely for single taxpayers earning $95,000 and joint filers earning $170,000. The IRS has said about 36 million households are in line to receive the payments, which will be sent each month until they end in December.
The checks are arriving at a time when the economy is rebounding, yet still bears the scars of the pandemic. Nearly 7 million fewer people are on payrolls today than prior to the pandemic, and one-quarter of Americans struggled to pay their household expenses in the previous week, according to Census survey data from mid-June.
“One thing the Child Tax Credit will do is create some stability to make sure there is a basic level of income for every child,” said LaDonna Pavetti, vice president for family income support policy at the left-leaning Center on Budget and Policy Priorities. “That is really critical because one thing we know about families who are on SNAP or [the welfare program] TANF is that their situations are very volatile.”
About 42.3 million people were receiving food stamps through the Supplemental Nutrition Assistance Program, or SNAP, in April, an increase of about 15% since before the pandemic.
The IRS will begin disbursing the payments on Thursday, July 15. Here’s what some 36 million American families need to know:
Will I get my payment on July 15?
The IRS will send the money on Thursday, but it will probably require two to three business days for the direct deposits to land in bank accounts, Steber said.
“I wouldn’t expect the money on July 15 — that’s when the IRS will release the funds,” Steber said. “There will be some lag time for the money to hit your bank account.”
That’s similar to the third round of stimulus checks, for which the IRS disbursed 90 million payments on March 17. But many people didn’t get the deposits in their bank accounts for several days, causing some alarm among consumers who expected to see the money in their accounts that same day. The reason for the delay is partly due to the time required by banks to process and settle the funds, at which point the money can then be delivered to individual accounts.
Likewise, the IRS will mail paper checks to people for whom it doesn’t have bank account information. Those paper checks could take one to two weeks to arrive, Steber said.
What are the dates for the other payments?
The IRS says the monthly payments will be disbursed on these dates:
- July 15
- August 13
- September 15
- October 15
- November 15
- December 15
How will I receive the payments?
Steber of Jackson Hewitt said that many of the tax prep firm’s customers are asking how they’ll get their payments, such as via direct deposit or paper check.
“If you are a taxpayer and get your refund electronically deposited into your bank account, that’s how you’ll get the CTC,” Steber said.
In other words, if you’ve provided the IRS with your bank account information in order to receive a tax refund, the tax agency will directly deposit the CTC payment into that account. If you do not have a bank account or haven’t provided the IRS with your bank information, the agency will mail you a check.
However, if you want to make sure you are getting a direct deposit, you can check the IRS’ Child Tax Credit Update Portal. The online tool will also allow you to update your bank account information.
What if I had a child in 2021 — how will the IRS know?
The IRS is basing the payments on the most recent tax filing for families. In other words, a family’s 2020 tax return is the most recent data available to the agency, which wouldn’t include children born or adopted in 2021.
However, the IRS says it will add the ability to update your information to include a child born or adopted in 2021 through its Child Tax Credit Update Portal.
While that function isn’t yet available, it could be added within the next few weeks, Steber says. Families that added a child in 2021 should keep an eye on that and update their information as soon as possible if they want to receive the monthly checks, he said.
I’d rather get a big refund next year — can I opt out?
As noted above, the expanded CTC provides a $3,600 credit for each child under 6 years old and $3,000 for each child age6 to 17.
The monthly payments represent half of the total credit, with the cash deposits running from July through December. For example, a family with one child under 6 will receive half of the $3,600 credit in cash, or $1,800, which will be split into six monthly checks of $300 each.
The remainder of the CTC is claimed when you file your 2021 taxes early next year.
Some taxpayers who want to get a bigger tax refund in 2022 have asked if they could opt out of the monthly payments and simply claim the entire $3,600 or $3,000 tax credit on their 1040s. The answer is yes, Steber said.
To opt out, taxpayers should go to the Child Tax Credit Update Portal.
Other people may want to opt out of the payments if they aren’t eligible — such as if their income is higher in 2021, disqualifying them from receiving the payment, or if they are divorced and their ex-spouse is claiming their child as a dependent, instead of themselves claiming that child. (You can find more information on the CTC’s age and income eligibility here.)
If you do receive money through the CTC that you aren’t eligible to receive, you’ll eventually have to pay that back to the IRS next year during the 2021 tax filing season — another reason why some people may want to opt out, Steber said.
Will I need to pay taxes on the CTC payments?
No, because the CTC payments aren’t considered income, Steber said.
“Much like the stimulus payments, these are tax credits,” he noted.
But recipients should keep track of how much they receive from the IRS, because they will need to reconcile those payments on their 1040s in early 2022. That’s because half of the CTC will be claimed on your tax return, so you’ll need to know how much you received to accurately report that information.
Will I need to report the CTC payments on my taxes?
Yes, because parents will claim the other half of the expanded CTC payments when they file their tax returns for 2021.
The IRS will send a letter to each household in early 2022 stating the amount of CTC received. You should keep that letter for your records, Steber said.
Misreporting CTC payments on your 1040 could cause a delay in your tax refund in 2022. Some taxpayers have been caught in limbo this year because they didn’t accurately report their stimulus payments on their 1040s, which triggers a review by IRS employees, adding more time to process refunds. The IRS currently has a backlog of about 35 million tax returns, with many held up because of errors on those tax returns.
Will the expanded CTC continue beyond 2021?
Right now, the Biden administration is pushing for the expanded tax credit to be renewed beyond 2021, but it’s unclear whether that will happen, Pavetti of the CBPP said.
Under Biden’s plan, the monthly payments would be extended for five more years, White House Press Secretary Jen Psaki told “CBS This Morning” last month.
“He thinks this is a central benefit that will help families, help get women back to work,” Psaki said, noting that more than 1 million women have left the workforce during the pandemic to care for their children and families.
The expanded CTC should help parents pay for basics such as child care, groceries, school supplies and the costs of raising a family, experts say. “It’ll help them to just meet the additional needs that comes with having kids,” Pavetti said. “The CTC will just be a huge benefit for families that are struggling.”