The Child Tax Credit is a federal benefit that was created in 1997, as a part of the Taxpayer Relief Act, to reduce income tax liability for parents as opposed to a deduction that reduces taxable income. Since its creation, the credit has been modified and expanded several times. As a part of the $1.9 trillion COVID-19 stimulus law enacted in March, the tax was changed to become a monthly parental allowance rather than an annual tax break.
On September 15, 2021, families across the country received their third Child Tax Credit monthly automatic payment. The fourth payment is set to arrive on October 15, and forthcoming payments will be sent every month on the 15th until the end of the year. The Internal Revenue Service (IRS) will send these monthly payments directly to individuals through direct deposit, paper checks or debit cards.
How to Determine Your Eligibility
To qualify for advance payments of the Child Tax Credit, the IRS says you (and your spouse, if you filed a joint return) must have:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return
- Lived in a home in the United States for more than half the year
- A qualifying child who has a valid Social Security number and has made less than certain income limits
According to NerdWallet, you can take full advantage of the credit if your modified adjusted gross income is under:
- Single: $75,000
- Head of household: $112,500
- Married filing jointly: $150,000
You may still be able to claim a percentage of the tax credit if your income is higher; however, the amount of credit begins to lessen above these thresholds.
How Much Can I Expect If I Qualify?
The American Rescue Plan increased the Child Tax Credit for the 2021 tax year from $2,000 per child to $3,000 per child for children over the age of six, and from $2,000 to $3,600 for children under the age of six. It also raised the age limit from 16 to 17. To get money to families sooner, the IRS is sending families half of their 2021 Child Tax Credit as monthly payments of $300 per child under age six and $250 per child between the ages of 6 and 17.
Why You May Consider Opting Out
For those who do not want to receive monthly Child Tax Credit payments, you can opt out through the IRS's Child Tax Credit Update Portal. You may consider opting out of monthly payments to boost your tax refund or to claim a larger Child Tax Credit when filing your 2021 taxes. You can also consider opting out if you no longer qualify for the Child Tax Credit as you would have to pay back some or all the money you received via monthly payments this year.
Scams to Watch Out For
The Federal Trade Commission has received reports of fraudsters attempting to trick people out of their tax credit money through calls, emails, texts and direct messages. Look out for suspicious messages from individuals claiming they can help you get your payments earlier or help get you additional money. Remember that only the IRS sends Child Tax Credit payments. The government will never call, text, email or direct message you out of nowhere asking you for your money. If someone tries to scam you out of these payments or anything else, report it to the FTC at ReportFraud.ftc.gov.
Reach out to your CPA or tax preparer to learn how to best utilize the Child Tax Credit in your personal situation, and to find more information visit the IRS website.
