On Monday May 17th the Biden administration announced updates to the monthly payment of the Child Tax Credit. The American Rescue Plan (which was signed into law in March of 2021) increased the child tax credit from $2000 per child and is now fully refundable. In addition, families will receive half of the credit in the 2021 calendar year rather than waiting to file in 2022.
Who’s directly impacted?
Guardians with children under 6 will receive a credit of $3600 total. For children between ages 6 and 17 guardians will receive a $3000 credit. Half of this credit will be distributed monthly to eligible filers. Monthly payments will equal $250/month for children ages 6 – 17 and $300/month for children under 6. This credit amount phases out for single filers making more than $75,000 and married couples making more than $150,000.
When do payments start?
Payments are scheduled to begin July 15th and monthly thereafter.
Unfortunately, the payments will be based on 2020s tax returns. This can present a logistical problem for parents who share custody of their children. For example, if two parents are alternating claiming a child each year the 2021 payments will be sent to the parent who claimed the child as a dependent in 2020. It will be the responsibility of the parents/guardians to ensure the payments make it to the parent entitled to the funds.
For those who don’t want the monthly payments
The IRS stated there will be a portal allowing taxpayers to opt out of the monthly payments. If you alternate claiming a dependent each tax year this could be a great option to avoid funds being deposited to the incorrect parent in 2021. It’s important to remember the advance payments might mean your tax refund looks smaller than you’re used to. If you prefer to see the larger refund in the spring you might consider opting out of the monthly payments.
Our team will continue to provide updates as available regarding the child tax credit and payments. However, this information is subject to change. You should always refer to the IRS website as they are the authority over these payments.
Damian is the lead Financial Concierge on Your Money Line, the financial help line serving all Pete the Planner® Financial Wellness clients. Damian is a CERTIFIED FINANCIAL PLANNER™ professional and loves answering your money questions. Despite sharing a last name and sense of humor, Damian and Pete are not related.