Child Tax Credit Payments Explained

I learned about the Child Tax Credit (CTC) payments from a family friend a month back. As she excitedly told me about additional stimulus payments for children making way into our bank accounts soon, I imagined all things I could do with the money. Soon I received a letter from Internal Revenue Service (IRS) stating that our family might be eligible for the CTC program. That’s when I realized that the payments were an advance tax credit and not the usual stimulus payments. In this article, I outline what the CTC program is and some things that you might not have known about it, like me.

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What is the Child Tax Credit?

Beginning July 15th, 2021 the IRS will give out half of the child tax credit as an advance payment that filers would have received when filing their taxes in 2022. The American Rescue Plan, signed by federal lawmakers in March, increased the credit amount for this year to $3600 for children below 5 years of age and $3000 for children between 6 and 17 years of age, from the previous amount of $2000.

The credit will be distributed on the 15th of every month from July to December 2021 and the remaining half of the credit will be given at the usual tax filing time in 2022. This will amount to $250 every month for a child in the 6–17 years age bracket and $300 for a child below 5 years of age.

Who will get the money?

To qualify for the credit the following conditions must be met:

(i) To receive the CTC an individual and their spouse ( if tax was filed jointly) must have filed their tax for the year 2019 or 2020 or provided IRS with their information to receive the stimulus checks as a non-filer. This essentially means that the IRS needs to have your information either as a filer or non-filer.

(ii) Have a main house in the United States for more than half the year (being away temporarily does not affect this).

(iii) Have a qualifying child who has lived with you for more than half of the tax year 2021 and whom you have claimed as a dependent. According to the IRS website:

The individual is the taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, a grandchild, niece, or nephew).

(iv) Your income falls below certain limits, these are the same as the ones applicable for the stimulus checks. For tax filed individually this is $75,000 per year and for those who filed jointly, this is $150,000.

How is it different from stimulus checks?

Unlike stimulus checks, CTC is not bonus money for all households. Only those who have claimed a dependent child will receive it.

And even if you are eligible for the credit it is still not all extra money.

Granted that the credit amount has increased by $1000 for some and $1600 for others, it is still an advance payment of what households would have received next year. It is essentially a way to move up some of the money that was to be received later.

For those households who had planned a big expense around the time tax is filed in 2022, they will actually be receiving less at that time, than the $2000 that they receive in a typical year, if they get the advance payments this year. IRS is giving an option to opt-out of payments and get the whole increased credit amount at the usual tax filing time. Therefore, if this applies to you IRS has a portal that can be used to unenroll from the advance CTC payments.

Secondly, unlike the stimulus checks, IRS can ask for the CTC money back in case an individual receives more than what they are eligible for. For instance, if an individual’s income increased during the year and they went above the qualifying income levels, then they would have to pay back the CTC money when tax is filed next year.

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Resources for more information:

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• IRS eligibility assistant website:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-eligibility-assistant

• To unenroll from advance payments and to enter information for non-filers:

https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

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This post was previously published on Medium.

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