money IRS sends Child Tax Credit payments to families of 60 million children
The Internal Revenue Service sent the first set of monthly Child Tax Credit payments to families of nearly 60 million children this week, averaging out to $483 per family.
Approximately $15 billion worth of payments were distributed, the government said.
“For the first time in our nation's history, American working families are receiving monthly tax relief payments to help pay for essentials like doctor’s visits, school supplies, and groceries,” Treasury Secretary Janet Yellen said in a statement on Thursday. “This major middle-class tax relief and step in reducing child poverty is a remarkable economic victory for America – and also a moral one.”
The monthly payments — made possible by the $1.9 trillion American Rescue Plan that also increased the credit amount and made it fully refundable — will be distributed monthly through December. The first payments were set to go out on July 15, but some received theirs a day earlier.
Eighty-six percent of the first payments were directly deposited to bank accounts. The remainder were sent out as checks in the mail.
Families that do not normally file a federal tax return but provided their banking information through the IRS Non-Filers tool for the stimulus payments will automatically get the CTC payments. This affects more than 720,000 children whose families otherwise wouldn't have received the payments.
The maximum credit in 2021 is $3,600 for children under 6 and $3,000 for children between 6 and 17. Families will get half of their credit distributed in six installments. The next five monthly payments will be sent out on August 13, September 15, October 15, November 15, and December 15.
Here’s what else you need to know about the monthly payments.
How much will my payment be?
Eligible households will receive half of their total payments in advance over the next six months beginning in July and ending in December. The monthly payments will be $250 for older children and $300 for children under 6.
The amount will be determined by their 2020 tax return. If that return is not available, the IRS will use their 2019 return.
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A single filer with children under 17 making up to $75,000 will receive the full payment for each child, while those earning up to $90,000 will get a reduced amount. Joint filers with children making up to $150,000 will get the full credit for their child, while those earning up to $170,000 will receive a smaller amount.
Single filers making over $200,000 and joint filers making over $400,000 will be eligible for the old credit, which is $2,000 per child under 17.
Who is eligible?
The IRS will use your 2020 federal tax return and income to determine whether you’re eligible for the credit. The advanced payments equal half of an eligible household's total credit, while the remaining half of the credit can be claimed on your 2021 tax return.
The payments would be made to eligible taxpayers who have a main home in the U.S. for more than half a year.
The CTC was also made fully refundable, which allows taxpayers to get the credit as a refund even if it’s worth more than what they owe in taxes. More than 26 million children who would previously receive less than the full CTC credits are now receiving the full credit, according to estimates by the Treasury Department.
Households of approximately 65 million children — or 88% of U.S. kids — will be eligible, the Treasury Department said in May. The payments will be delivered through direct deposit, paper check, or debit cards.
What should I do to claim the credit?
Most taxpayers shouldn’t take additional action to file for the credit besides filing their 2020 tax return if they haven’t done so already.
Read more: Taxes 2021: Credits, deductions, and tax breaks for student loans and college costs
Additionally, eligible taxpayers who don't want to receive advanced payments for 2021 can decline to receive the monthly payments, but the IRS has yet to detail how to do that.
Can the credit become permanent?
As part of his American Families Plan, President Joe Biden is proposing to extend the expansion of the CTC through 2025. He has previously said that the administration aims to make the benefit permanent.
Some lawmakers also support making permanent the expansion of the CTC and the expanded Earned Income Tax Credit (EITC).
"We must not allow these critical expansions to expire after one year," 40 Democratic senators wrote in a letter in March. "Doing so would result in a significant spike in child poverty, after we have made historic strides to end it. It would mean that millions of struggling adult workers would once again be taxed into poverty."
How to opt out of the CTC payments?
Families have the option to opt out of the monthly payments and can do it three days before the first Thursday of the month so they're unenrolled for that month and the following months of payments.
Taxpayers can use "The Child Tax Credit Update Portal" to unenroll from the monthly payments. They will instead receive the full credit after they file their 2021 tax return.
Unlike the three rounds of stimulus payments, the CTC payments have to be paid back if too much was given. Families that usually owe taxes to the IRS, saw their incomes increase significantly this year, or recently filed for divorce may want to consider unenrolling from the monthly payments, according to tax professionals.
Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova
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