We got some really great news for parents.
So monthly payments through the new federal enhanced child tax credit will start on July 15, 2021.
This child tax credit will go to close to 40 million households, or roughly 90% of children in the United States, according to the IRS.
So in this post, we want to eliminate all the confusion around the child tax credit, and more so keep reading!
What Is The Monthly Child Tax Credit All About?
Well, as a part of the American Resume plan that was signed into law back in March…
…households will get an enhanced child tax credit up to $3,600 for children younger than age 6 and $3,000 for those between the ages of 6 and 17.
Now instead of sending out those payments all at once, they have decided to do monthly installments.
$300/month for people who qualify for the $3,600 and $250/month for those people who qualify for the $3,000 child tax credit.
Now, these are tax credits.
Let us repeat, tax credits, which means this is not a stimulus check.
You can think of this more as an advance on your 2021 tax return.
This could have some ramifications on your tax refund in 2022, which we will explore a little bit later.
Now, the credit is per child in each household.
So for example, if you have kids who are, let’s say 2, 4, and 8, then you would get up to $850 a month.
This is $600/month for two kids under 6 and $250 for the kid between 6 and 17.
So that’s a really good tax credit. And the first payment goes out on July 15th!
Who Qualifies For The Maximum Credit?
Most people will qualify for the credit, so if you are filing single then the full credit is available to you as long as you make $75,000 or less.
And if you are married filing jointly then the full credit is available if you make $150,000 or less.
The full tax credit will basically phase out for individuals who make more than $95,000 or when married couples filing jointly earn more than $170,000.
Now, if for some reason you don’t qualify, don’t worry too much because you will still be eligible for the normal child tax credit, which is $2,000 per child under the age of 17.
As long as you make less than $200,000 individually or $400,000 as a married couple.
But that tax credit will likely be given to you when you file your tax return in 2022.
How To Get Your New Monthly Child Tax Credit Payments?
Right now, your best bet is to make sure that you have filed your tax return.
We understand that some returns haven’t even been processed yet.
But as long as you filed then your 2020 taxes, then you don’t have to do anything else right now – according to the IRS.
If you haven’t done 2020 taxes yet, then the IRS will use your 2019 taxes.
But we would assume that will put you at the back of the line as far as receiving your monthly child tax credits.
Another update is that the IRS is working on a portal so that people who haven’t filed can submit their information and receive the credits.
The portal should help with taxpayers being able to submit changes going forward as well such as which parent is claiming a child, so there is no confusion like there is now.
How Will The Payments Be Sent?
Well just like the stimulus checks, the IRS plans to send the monthly child tax credit payments by direct deposit.
According to the IRS, this is the way roughly 80% of taxpayers will receive their money.
So, if you receive your tax refund or pay your tax liabilities with bank account information then this is likely what they will use to send the payments to.
This means it’s important to make sure that whatever bank account information you used to file your taxes last year, was not only the correct information.
But, that account stays active as long as you want to receive the credit payments.
If you don’t have a direct deposit setup, then IRS will likely mail you a check.
So again, make sure your address is up to date so your money gets sent to the right place.
You can log into your IRS account to check your address.
When Will The Payments Be Sent?
The first payment as we mentioned will start on July 15th and then after that, you should expect to receive your next payment on the 15th of every month.
Unless of course if the 15th falls on a weekend or holiday, you can expect the money will be sent on the closest business day.
Now as far as when the payments will end, as of now, the monthly payments are scheduled to continue through the end of 2021. But of course, things are rapidly changing.
The President actually recommended that the enhanced credits stay in place until 2025.
And there are more aggressive thoughts that want the tax credits to continue indefinitely.
Can You Opt-out Of The Monthly Child Tax Credits? How Does It Affect Your Tax Planning?
Now as we touched on earlier, we can’t forget that these are tax credits.
And on top of that, most people have been used to, and almost conditioned to, receive their tax credits on their tax return which gives them a big juicy tax refund.
But this time around, you will be getting those payments throughout the year, so your tax refund could be significantly reduced.
Some people like the idea of getting that huge tax refund.
Because you can make a large purchase without having to think about budgeting much.
For example, if you need to repair something at the house or something on your car, you have a lump sum of money to do so.
Or maybe you just want to buy a new stove or refrigerator, again, instead of you having to budget, you can just plan to use your tax refund on that.
So if that’s you, yes, you can opt out of receiving monthly payments through the IRS portal.
And yes, you will still receive the full credit as long as you’re eligible when you file your taxes in 2022.
So, at the end of the day, you want to think about your overall tax plan for yourself and your family. And that will dig into how you plan to budget for monthly and yearly expenses.
Of course, if you want to learn more about tax planning especially if you are in business then that’s what we are all about.
Make sure to check out the tax solutions we offer such as tax planning, tax preparation, and tax resolution. Contact us today!