Christine Hernandez
Early childhood educator, writer, and mother. Your friendly neighborhood guide to all things parenting.
Millions of American parents will begin receiving monthly payments of up to $300 per child, starting July 15 2021. In his statement, Biden said, "For working families with children, this tax cut sends a clear message: help is here." Here's what you need to know.
What this means for parents
The expanded benefits are part of the American Rescue Plan, which will provide families a tax credit of up to $3,600 for each child under 6 and $3,000 for children under 18. The maximum benefit is available to parents with incomes of up to $75,000 per year, or joint filers with incomes of up to $150,000 per year.
The credit is then reduced by $50 for every additional $1,000 of adjusted gross income. You can use this calculator to see what you qualify for. 9 out of 10 families will qualify for something!
Graphic Courtesy of Cnet
These changes will allow approximately 4.1 million children under 18 to be lifted out of poverty according to calculations from the Center on Budget and Policy Priorities. Overall, about 27 million children will benefit in some way from the Child Tax Credit becoming fully refundable.
How is this different from years past?
Previous years: The Child Tax Credit (CTC) is a federal tax credit that historically provides parents up to $2,000 for each child under the age of seventeen.
2021: Under the new plan, the credit will be increased to $3,000 per child under 18 and an additional $600 for children under the age of six. The IRS will begin paying this credit in advance, in several increments for eligible families. This tax credit is refundable. This means it gets deducted from any amount you owe on your taxes and you could end up getting a refund check.
Do you have to be employed to claim the CTC?
A new provision allows families with no income to claim the credit. This is huge for families who are struggling, as previously a minimum of $2,500 was required to receive the credit and this left out families with very low or no income.
Can you opt-out of the monthly payments?
Yes, you can opt out of the monthly payments if you'd prefer to receive the whole credit at once after you file your 2021 taxes. Start July 1st, the IRS will open a portal, specifically for managing the new Child Tax Credit and this is where you can decline the monthly payments. If you filed your 2020 taxes by May 17 2021, and do not opt-out via the IRS portal, you will automatically receive half of your credit up-front, paid out monthly, and the other half when you file your 2021 taxes.
While these changes won't fix everything, they will give families a much needed break financially. Keep in mind, these credits will look different for every family. You can work with your tax professional or head to the IRS website to find more information about eligibility.
