Parents: Kudos to you. You’ve made it through tough times – maybe the worst of times.
Your family is likely included in the 39 million households across America to receive the automatic Child Tax Credit (CTC) for more than 65 million children via direct deposit, checks and debit cards in the mail beginning July 15, 2021.
Authorized under President Biden’s $1.9 trillion stimulus plan, the CTC was created to help people with the costs of bringing up a child during the pandemic. However, it does not include assistance toward the costs of childcare.
“Help is here,” said President Joe Biden in his White House remarks.
The credit for qualifying children is fully refundable, which means that you can benefit from the credit even if you don’t have earned income or don’t owe any income taxes.
Only one household can get the CTC for each child. The American Rescue Plan Act (ARPA) of 2021 package makes the CTC fully refundable as an advantage to low-income parents.
The maximum enhanced CTC this year for children younger than 6 is $3,600. For children between the ages of 6 and 17 the amount is $3,000.
Eligible parents will receive a $300 payment on the 15th of each month for each child under age 6 and $250 per month for each child ages 6 to 17.
A family with three children ages 5, 9 and 13, for example, could receive up to $800 on a monthly basis (A $300 credit for the 5-year-old, and $250 each for the older kids.)
The full credit is available to married couples with children filing jointly with adjusted gross income less than $150,000, or $75,000 for individuals.
Essentially, the enhanced CTC will phase out for taxpayers who make more money, and cease for individuals earning $95,000 and married couples earning $170,000 filing jointly.
Taxpayers who make more than that will still be eligible for the regular child tax credit, which is $2,000 per child under age 17 for families making less than $200,000 annually, or $400,000 for married couples.
In an effort to make it easier for parents to use the funds to cover their expenses during the year, sending families half the credit on a monthly basis, from July through December, they will claim the other half on their 2021 tax returns.
Eligible taxpayers who do not want to receive advance payment of the 2021 child tax credit will have the opportunity to decline receiving advance payments. Taxpayers who make more than that will still be eligible for the regular child tax credit of $2,000 per child under age 17 for families making less than $200,000 annually, or $400,000 for married couples.
Challenges for the IRS
The expansion of the monthly child tax credit is considered one of the most significant tax changes in President Joe Biden’s Plan. The enhanced Child Tax Credit alone is expected to cut child poverty nearly in half.
At first, the IRS warned families that they might face delays in receiving the monthly checks due to sending stimulus checks and handling its own current tax season duties. The IRS has distributed approximately 165 million Economic Impact Payments with a value of approximately $388 billion as a part of the American Rescue Plan since March 12.
However, in April, IRS Commissioner Charles Rettig cleared the way, urging everyone to file a tax return by the extended tax filing date of May 17, including low-income people who otherwise wouldn’t be required to file an annual return, to make sure the IRS is aware of them and can direct the payments to them.
More to Come
The IRS is working to create a portal for non-filers to submit their information and receive the credit. The agency plans on making an additional portal for taxpayers to submit other changes going forward, such as updating family information if there’s a change in custody, which parent is claiming the child and credit or if a child is born during the year.
The agency is also launching a separate portal allowing parents to update their address, bank account information and family size, as well as opt out of the monthly payments in favor of receiving the tax credit as a lump sum next year when they file their returns. More details about the portals will be announced. The administration plans to launch an outreach campaign to inform families about the enhanced payments and the portals.
The IRS urges community groups, non-profits, associations, education groups and anyone else with connections to people with children to share this critical information about the child tax credit. The IRS will be providing additional materials and information that can be easily shared by social media, email and other methods.
As always, your Hefren-Tillotson financial advisor is available to answer any questions.