You may have heard that the IRS will be sending “monthly stimulus payments” or monthly Child Tax Credit payments to some families starting in July. Here is what you need to know:
The recently passed third stimulus relief package, known as the American Rescue Plan, expanded the Child Tax Credit. Beginning with your tax year 2021 taxes (the ones filed in 2022) the age limit and the amount of the credit will be increased and it will become fully refundable – meaning you’ll be eligible for the benefits even if you don’t owe taxes.
Although this credit is for next year’s tax filings, this new provision under the American Rescue Plan allows for monthly advanced payments to those who are eligible. The IRS began sending letters to those who are eligible for the advance 2021 Child Tax Credit payments with additional details on their payments.
Eligibility will be based on information included in either your 2019 or 2020 federal income taxes or the IRS non–filers tool.
Haven’t filed your taxes yet? The IRS encourages you to file as soon as possible so that they have the latest information to determine and send your advance child tax credit.
If you don’t typically file a tax return and you are not already receiving Advance Child Tax Credit payments, you can still register for your advanced monthly payments through the IRS Non-filer Sign Up Tool until November 15, 2021. Families who sign up will receive half of their total Child Tax Credit on December 15($1,800 for each child under 6, and up to $1,500 for each child 6 -17).
If you do not receive Advanced Child Tax Credit payments and you are eligible, you will be able to claim the full amount of the 2021 Child Tax Credit when you file your 2021 taxes.
The IRS launched two new tools to help families manage and monitor the advance monthly Child Tax Credit.
- The Child Tax Credit Eligibility Assistant: helps you understand if you are eligible for the Advance Child Tax Credit.
- The Child Tax Credit Update Portal: allows you to choose to opt out of these monthly advanced payments, update direct deposit information, switch from paper check to direct deposit, and stop payments anytime. Most people who the Child Tax Credit Update Portal shows as eligible for Advance Child Tax Credit payments can update certain information and will be able to update changes to income, dependents, and filing status coming this Fall so the IRS can make adjustments to remaining advance payments. Beginning on Nov 1, 2021, the IRS launched a new feature that allows you to update your income using the Child Tax Credit Update portal.
Check out our TurboTax Child Tax Credit Calculator that helps you easily estimate your 2021 Child Tax Credit and Advanced Monthly Child Tax Credit payments.
- Advanced Monthly Payments: Select 2021 for Year of tax return, enter in your 2020 tax information, and check the box "To understand your advance, enter your 2020 tax information and check this box."
- 2021 Child Tax Credit: Select 2021 for year of tax return and enter your 2021 information.
- 2020 Child Tax Credit: Select 2020 for year of tax return and enter your 2020 information.
Child Tax Credit
- Most people will receive about half of the Child Tax Credit as advanced monthly payments and the other half when they file their taxes in 2022. This could make your 2022 refund look smaller than what you typically receive.
- There are certain situations where you might want to consider opting out of these payments to avoid needing to pay back these monthly payments on your 2021 tax return. You can find more information on these situations, here.
How much will families with children get with the new Child Tax Credit?
Starting in 2021 (the taxes you file in 2022) the plan increases the Child Tax Credit from $2,000 to:
- Up to $3,600 for each qualifying child under 6
- Up to $3,000 for each qualifying child age 6 to 17
This is the first time that families with children age 17 will be eligible for this credit.
Eligible families may receive an advance payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above. Instead of getting this credit as part of your refund in 2022, these payments are sent in advance and represent a portion of the tax year 2021 Child Tax Credit.
The IRS will also be sending letters to help you understand everything you need to know about upcoming payments.
You can also check if you qualify for the credit and payments by answering a series of questions using the Child Tax Credit Eligibility Assistant Tool available in English and Spanish.
When Will the Advance 2021 Child Tax Credit Payments Start?
Monthly payments will begin on July 15, 2021, and will be sent out through direct deposit, paper check, or debit cards.
IRS payments schedule:
- July 15
- August 13
- September 15
- October 15
- November 15
- December 15
Families who did not get a July, August or September payment and are getting their first monthly payment beginning in later months will still receive their total advance payment for the year. This means that the total payment will be spread over the remaining months, rather than six, making each monthly payment larger.
How can I update my bank information?
The Child Tax Credit Update Portal allows you to update your bank information or opt out of advanced payments. Changes need to be made before the first Thursday of next month. If you were unable to make changes by November 1 to be reflected in your November 15 advanced payment, you can enter them by November 29 so they are reflected in the December payment.
Those who are not enrolled for direct deposit will receive a check. The IRS encourages people without current bank account information to use the tool to update their information so they can get the payments sooner and opt for direct deposit. When updating the information you will need the routing number and account number and indicate if it is a savings or checking account.
Will this affect my tax refund next year?
If you are receiving these monthly payments, your tax refund next year will likely look smaller.
This is an advance on your CTC credit. That means you are receiving part of the credit you would have received on your 2021 tax return now and your tax refund next year will not include the full amount of the credit.
If you would prefer to receive the full amount of the credit on your tax refund instead of as monthly payments, the IRS Child Tax Credit Update Portal enables anyone who has been determined to be eligible to opt out of the advance payment program.
Who is eligible to get the new expanded Child Tax Credit?
You may be eligible for the full amount of the credit if you have an eligible child and meet one of the following qualifications:
- Parents with a single filing status or married filing separately making up to $75,000 a year,
- Parents filing married filing jointly or a parent filing as a surviving spouse, earning up to $150,000 a year,
- Parents filing as head of household earning up to $112,500
If you have income above these amounts, the credit will be reduced by $50 for each $1,000 that your Modified Adjusted Gross Income (MAGI) exceeds these thresholds.
For example, a couple using the filing status married filing jointly with a child between the age of 6 to 17 and earning $160,000 would still receive the CTC credit but $500 ($10,000/$1000 x $50 = $500) would be phased out.
The IRS urges grandparents, foster parents or people caring for siblings or other relatives to check their eligibility.
A qualifying eligible child can be a filer’s:
- son or daughter
- eligible foster child
- siblings, including step-siblings or half-siblings
- a descendent of any of the above – for example a grandchild, niece or nephew.
Families who are not eligible for the expanded $3,000 or $3,600 credit because they earn higher than the modified adjusted gross income mentioned above may still be able to claim the Child Tax Credit up to $2,000 under the existing tax provision for each qualifying child under 17. This credit amount is still available to individuals earning up to $200,000 or married couples filing jointly earning up to $400,000.
What do I need to do to claim the new expanded Child Tax Credit?
Most families don’t need to do anything to be eligible for the monthly payments.
The IRS will likely determine eligibility based on your most recent processed tax filing. If you have not filed your 2020 or 2019 taxes yet you are encouraged to file them so the IRS has the most up-to-date information to determine eligibility.
The IRS states that tax returns must be processed by June 28, to be included in the first batch of monthly payments scheduled for July 15. If you are just filing your taxes you may receive payments in the following months. If your monthly payments begin after July, the IRS states they will adjust the monthly amounts upward so that you receive half of the total 2021 Child Tax Credit by the end of the year.
What if I Don’t Normally File a Return? How do I Receive Advance Child Tax Credit?
The IRS launched the Non-filer Sign Up Tool designed to help eligible families who don’t usually file tax returns register for the monthly Advanced Child Care Credit payments, scheduled to begin on July 15. Intuit helped deliver the Non-filer Sign Up Tool through participation with the Free File Alliance to provide an easy, free way for individuals who don’t have an income tax return-filing obligation to provide the IRS the basic information needed—name, address, and Social Security numbers—to figure and issue their Advance Child Tax Credit payments.
If you are not already receiving Advance Child Tax Credit payments, the deadline to sign up is November 15, 2021. Families who sign up may receive half of their total 2021 Child Tax Credit on December 15($1,800 got each child under 6, and up to $1,500 for each child 6 -17)
Will I be required to pay this credit back?
These monthly payments are an advance of your 2021 Child Tax Credit (CTC) – which you would typically receive in your tax refund. The advanced monthly payments will be reconciled on your 2021 tax year return (the taxes you file in 2022). This means that if something changed in your tax situation this year (like your income and/or dependents) you may see a change in your tax refund next year.
What does this mean:
- If you were eligible for a higher credit amount you will receive additional dollars in the form of the credit on your 2021 tax return.
- If you received too much, you could see your refund go down to pay back any overpayment based on your actual 2021 information when you file your taxes.
Don’t worry about knowing how to reconcile your advanced Child Tax Credit. TurboTax will be up to date with the latest tax laws and will guide you through reconciling the advanced Child Tax Credit.
Can I opt out of the advance payment program?
The IRS launched the IRS The Child Tax Credit Update Portal that allows you to unenroll or opt out of these monthly advance payments. To opt out of advance payments you must unenroll before the first Thursday of the next month so the next date to opt out is November 29. The IRS Child Tax Credit Update Portal also allows you to check the status of payments, update direct deposit information, switch from paper check to direct deposit, and stop payments anytime. On November 1, the IRS also launched a new feature that allows you to update your income using the Child Tax Credit Update Portal. This Fall you will also be able to make changes to dependents and filing status so the IRS has the necessary information to adjust your advanced monthly payments.
Can I opt out if I already started receiving advanced monthly Child Tax Credit payments?
Yes, you can opt out of future payments at any time after payments begin. If you choose to opt out of advance monthly payments after payments begin, you will receive the rest of your Child Tax Credit as a lump sum when you file your 2021 taxes in 2022 if you are eligible.
When will I get my payments if I unenroll from the advanced monthly payments?
By declining the monthly advance payments of Child Tax Credit (CTC), parents who are eligible can claim the full 2021 Child Tax Credit (up to $3,600 for a child under 6 and up to $3,000 for a child 6 – 17) when they file their 2021 taxes in 2022. The CTC advanced monthly payments from July to December 2021 should amount to half of the total credit. So rather than seeing half the credit in monthly installment payments and the other half on their tax return, parents opting out of the monthly payments will get the full CTC credit amount they are eligible for on their tax return provided parents did not receive any advanced payments.
What to do if I didn’t receive advance monthly Child Tax Credit payments and I have an eligible child?
If you do not receive Advance Child Tax Credit payments for a qualifying child, you can claim the credit on your 2021 tax return. You may claim the full amount of the allowable Child Tax Credit for that child when filing your 2021 tax return (the taxes you file in 2022).
What should I do if I have a change in income?
If you have significant changes in your income you should enter the changes in the Child Tax Credit Update Portal. You can enter your changes by November 29, so they are reflected in the December payment. Once you update your income the IRS will adjust your remaining payment so that you receive the total advance payment for the year.
Who benefits from adjusting their income?
If you are receiving advanced monthly payments below the maximum ($300 per month for each qualifying child under 6, $250 per month for each child 6 – 17) and you experienced a reduction in income this year, reporting the change now can increase your Advanced Child Tax Credit payment in December. If you don’t report the change in income you may see more Child Tax Credit when you file your 2021 taxes.
If you had a substantial income increase in 2021 you should also consider updating your income in the Child Tax Credit Update Portal, especially if you are receiving the maximum monthly payment and you expect to qualify for less than the full credit when you file your 2021 taxes.
What will I receive to show how much advanced payments were issued to me?
At tax time, you will receive letter 6419 from the IRS showing any advance payments you were issued during 2021. Letter 6419 will also include the number of qualifying children used to calculate your Advanced Child Tax Credit. You should also have letter 6419 in front of you when you sit down to do your taxes so you can accurately report the Advanced Child Tax Credit payments you received and claim the remaining Child Tax Credit you are eligible for.
Can families abroad benefit from the new Child Tax Credit Provision?
The American Rescue Plan extends the Child Tax Credit to U.S. territories. This allows families in Puerto Rico, including those with fewer than three children, to benefit from the credit by filing directly with the IRS.
For a recap of the key things you need to know about the Child Tax Credit from one of our tax experts, watch the below video.
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