Here’s what you need to know about the monthly child tax credit payments
The child tax credit, created in 1997 with bipartisan support, is a form of tax relief intended to help ease the financial burden of raising children. (Dana Wormald | New Hampshire Bulletin)
Big changes to the child tax credit, especially new monthly payments for each child, have made child care bills, rent, and car repairs easier to cover. But they’ve also triggered questions among parents and even fears that the government will try to recoup the money, as the state did with some unemployment benefits.
“A lot of people are calling me asking, ‘What should I do? I’m so confused,’” said attorney Barbara Heggie, coordinator of the Low-Income Taxpayer Project at 603 Legal Aid. Christina D’Allesandro has had similar conversations with parents in her work as state director of MomsRising, an advocacy group focused on family economic security. “There are people who don’t trust it,” she said. The group has 24 FAQs about the child tax credit on its website. “We want to make sure we are giving them as many reliable sources as we can.”
We’ve asked experts to break down the expanded child tax credit, those new monthly payments, and why some parents may want to “opt out” and claim their entire credit in one lump sum.
What is the child tax credit?
The child tax credit, created in 1997 with bipartisan support, is a form of tax relief intended to help ease the financial burden of raising children. Historically, parents have received the credit annually when they file their taxes.
Last year, eligible parents could receive up to $2,000 per child, with $1,400 of that refundable. For example, a parent with one child who owed $2,500 in taxes last year could reduce that tax bill to $500 after claiming the tax credit. If that parent owed no taxes, they would receive the credit as a payment of $1,400.
What’s new this year?
The American Recovery Plan made what D’Allesandro called revolutionary changes to the child tax credit program. Under the expanded program:
- More people benefit. Until now, only parents with dependent children under 17 and a minimum income ($2,500 for 2020) who filed federal taxes got this credit. This year, all parents under certain income ceilings, even those who do not work, are potentially eligible, and 17-year-old dependents are now included. The rule changes extended the benefit to an additional 52,000 children in the state, according to the Center on Budget and Policy Priorities.
- Parents are getting the money differently. Rather than receiving the benefit all at once, on their tax return, parents can get half the tax credit in advance, in up to six monthly payments between now and December. They can get the other half when they file their tax return. If the remaining half is larger than what they owe in taxes, they will be paid the difference as a refund.
- The payments are bigger. Parents get $3,600 for each child age 5 or under and $3,000 for each child ages 6-17. For example, a qualifying parent or couple with 3-year-old twins and two teenagers under 18 will receive a child tax credit of $13,200. They’ll get the first half ($6,600) in monthly payments of $1,100 until December and the second half when they file a tax return.
“This change is revolutionary in that it does not only put money in the pockets of families, but it trusts people to make decisions that work for them and who have best information on their family’s needs,” D’Allesandro said. Parents have said they are using the payments for a variety of critical expenses, such as car repairs, groceries, dental expenses for their child, pre-school, and back-to-school clothes.
Am I eligible for the expanded child tax credit?
Most parents qualify for the full amount of the credit, including:
- married couples filing jointly and qualifying widows and widowers whose annual income is under $150,000
- a parent filing as head of household earning under $112,000 annually
- single filers who make under $75,000 annually
High earners not eligible to receive any of the credit include:
- married couples filing jointly whose annual income is above $400,000
- parents in the other two categories if their annual income is greater than $200,000.
For parents who fall between those thresholds, these payments are most easily estimated with an online calculator.
What do I have to do to receive my advance payments of the child tax credit?
Nothing in most cases. If you filed taxes in 2019 or 2020, applied for the pandemic stimulus payment using the IRS non-filers tool, or receive federal benefits like Social Security, the IRS will send your monthly payment to the address or bank account number you provided.
It’s the parents outside this group that worry Heggie, especially if they are not tech savvy or don’t have access to technology. They cannot get the advance payments of the 2021 child tax credit without filing a 2020 tax return, and the options for doing so – such as using the “non-filers sign-up tool” on the IRS website – may be out of reach for some. The site is easily translated into multiple languages, but the dense, technical language can be hard to decipher. And, there is no audio or video option for parents who need to hear instructions.
For those who cannot make use of these tools, Heggie advises applying for assistance at 603 Legal Aid. Those who qualify can receive services from the Low-Income Taxpayer Project, including help filing the necessary 2020 tax return.
I want my credit at once, not in monthly payments.
That’s an easy one – sort of. You will have to “opt out” or “unenroll” from the monthly payments on the IRS website using the “child tax credit update portal,” which like the other IRS website pages can be complicated and requires you to create an account if you do not have one. And, unfortunately, you cannot create an account unless you verify your identity with some sort of credit account, such as a mortgage or car loan, or by setting up an id.me account. You must opt out by Aug. 2 to stop payments before the next one arrives Aug. 15. If you miss the deadline, you can unenroll before Aug. 30 to stop payments in September.
Who should opt out of monthly payments?
Some parents may prefer to get their credit in one lump sum if they are saving up for a big expense or have planned to use that money to pay off a large debt.
If your household circumstances have changed this year or will soon, or if your tax situation is different, you may want to opt out to avoid miscalculated payments. Alternatively, you can update your information on the child tax credit update portal. This may be an option for divorced parents who alternate claiming a child on their taxes.
“The parent with the children for the greatest amount of time in 2021 is the parent who should be getting the advance payments,” Heggie said. “But the IRS doesn’t have any information for 2021 yet because the year isn’t over yet. They are looking at the 2020 tax return.”
Will I have to pay this money back?
The answer is no for most parents.
Parents may have to pay back some of their tax credit if their household circumstances have changed and they no longer qualify for a credit or they qualify for a smaller credit. This could include parents whose income has increased and put them in a new bracket or families with a child who has turned 18 – and aged out of the tax credit program – since they filed their 2020 return.
To avoid surprises at tax time, parents can update their income and household circumstances through the child tax credit update portal or opt out and collect their credit when they file their 2021 tax return with the most up-to-date information.
Those who receive a greater credit than they qualify for may have to pay some or all the money back, Heggie said, depending on their 2021income and filing status. For example, a single filer earning $75,000 will need to pay back some of the money at tax time, while a couple earning $55,000 won’t need to pay anything back.
Is this change permanent?
No. The expanded child tax credit in the American Rescue Plan is good for only 2021. Democrats are pushing to extend it. While Republicans have historically supported the child tax credit, none voted for the American Rescue Plan and some have criticized it.
D’Allesandro and her MomsRising colleagues are pushing for an extension with the help of the state’s congressional delegation. “Right now there is strong momentum,” she said. “Some of the biggest champions are so convinced that this is going to be transformative that there is a strong commitment to extend it for an amount of time that is truly going to allow us to make that assessment.”
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