Good news for parents: Monthly payments through the new federal enhanced child tax credit will begin July 15.
The credit will go to roughly 39 million households with about 65 million children, or 88% of children in the U.S., according to the IRS.
The expanded credit was established in the American Rescue Plan signed into law in March. In 2021, the maximum enhanced child tax credit is $3,600 for children younger than age 6 and $3,000 for those between 6 and 17.
More from Invest in You:
You can still tap free money for college — here’s how
How I learned about investing in stocks – and you can, too
College students get career experience as social media brand ambassadors
Those payments will be sent out as an advance on 2021 taxes in monthly installments that could be as much as $300 per month for younger children and $250 per month for older ones. The credit is per child in each household, meaning a family with three children ages 4, 8 and 12, for example, could receive up to $800 on a monthly basis (A $300 credit for the 4-year-old, and $250 each for the older kids.)
“For working families with children, this tax cut sends a clear message: Help is here,” said President Joe Biden in a Monday statement.
Here’s what families need to know ahead of the July 15 start.
Who qualifies for the maximum credit?
Most American families qualify for some amount of money through the child tax credit.
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. The enhanced tax credit 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.
What do I need to do to make sure my family gets the payment?
Most families eligible to receive the payments don’t have to do anything right now, according to the IRS. The agency will use the information filed on 2020 tax returns first to determine eligibility and will notify taxpayers, Ken Corbin, commissioner of the IRS’ Wage and Investment Division, during a Friday tax conference.
For those who haven’t filed 2020 taxes, the IRS will use 2019 returns.
The IRS is also working to make a portal available for non-filers to submit their information and receive the credit. The agency also 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 you have a child during the year.
“Look for a suite of tools,” said Corbin.
How will payments be sent?
As with the stimulus checks sent out by the IRS earlier this year and last, most of the monthly child tax credit payments will be sent by direct deposit — some 80% of those eligible will get the money this way, according to the agency.
If the IRS has direct deposit information on your tax return, it’s likely this is how you’ll receive the monthly credit. If you don’t have direct deposit, the IRS will also be sending out paper checks and debit cards to some families.
When will future payments be sent?
The IRS said that future payments will be made on the 15th of each month, unless the 15th falls on a weekend or holiday, at which point the money will be sent on the closest business day. Families can plan their budgets around receiving the payment mid-month, the IRS said.
So far, the monthly payments are only scheduled to continue through the end of 2021. Families will receive the second half of the credit when they file their 2021 taxes in 2022. But that could change — President Biden has suggested making the enhanced credit available through 2025, and other Democrats want to make it a permanent benefit.
Can I opt out? What happens if I do?
Families can opt out of receiving the monthly payments for the credit through an IRS portal. Those who do this won’t get the monthly amounts but will still receive the full credit they are eligible for when they file their 2021 taxes in 2022.
Some families may choose this route because they don’t need the monthly payments immediately or prefer to get a large lump sum of money back from the IRS as a tax refund, said Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center
“There’s evidence that shows that some people really like getting that large tax refund, and can use it as an opportunity to purchase a large household item like a refrigerator or put together first and last month’s rent so they can move,” she said.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.