If you have dependent children under 17, there’s a good chance extra money is coming your way soon. The expanded child tax credits of up to $300 a month per child will start hitting bank accounts on July 15....
If you have dependent children under 17, there’s a good chance extra money is coming your way soon.
The expanded child tax credits of up to $300 a month per child will start hitting bank accounts on July 15. Credits will continue each month through December. The payments are part of the American Rescue Plan that President Joe Biden signed into law in March.
Qualifying families will receive:
$300 per month for each child younger than 6. $250 per month for each child between the ages of 6 and 17.The full amount of the credit is $3,600 for children under 6 and $3,000 for older children. Normally, the child tax credit caps out at $2,000. The American Relief Plan provided an extra temporary credit of $1,800 for parents of children under 6, and an extra $1,000 for parents of kids ages 6 to 17.
Parents will receive half of the credits via monthly installment payments. Like stimulus checks, the payments are an advance on a tax credit. Parents will receive the remaining half of the credit next year, when they file a tax return for 2021.
Who Qualifies for the Extra Child Credit?
Single parents earning less than $75,000 a year, heads of household earning $112,500 and married couples earning less than $150,000 qualify for the full expanded credit.
For parents earning above these amounts, the extra $1,000 or $1,800 phases out by 5 cents for every $1 of income above the limit until it disappears completely. (This was the same phase-out formula used for the first stimulus check and second stimulus check.)
Parents who typically qualify for the $2,000 child tax credit but aren’t eligible for the additional credit will still qualify for the $2,000 credit next year at tax time.
Payments will be based on 2020 tax returns, or 2019 tax returns for people who haven’t filed yet or whose returns haven’t been processed.
For parents with split custody, the parent who claims the child as a dependent on their tax returns will qualify for the credit. But the IRS hasn’t provided information about how it will handle certain situations, such as if the parents take turns claiming the child as a dependent.
How Do I Make Sure I Get the Money?
You don’t need to do anything if you’ve already filed your 2020 tax return. As long as you’ve listed your children as dependents and you’re eligible, you’ll receive the payments — most likely in the same way you got your third stimulus check. If your latest stimulus check was deposited to your bank account, you’d expect the child credit to arrive in that same account via direct deposit unless you updated your bank account information on your 2020 return.
If you haven’t filed a 2020 return, you should file one even if you’re not required to. Using free tax filing software to submit your return online is the best way to ensure you get your money fast.
Even if you owe child support or other debts that typically result in an offset of your tax refund, you’ll still receive the monthly installment payments. However, the IRS could still garnish the other half of the credit at tax time.
If your child was born in 2021 (or 2020 if the IRS hasn’t processed your return by July), you won’t automatically get payments starting July 15. However, the IRS says it will provide taxpayers the opportunity to update information about changes in their income, filing status or the number of qualifying children. Parents will also be able to opt out of the monthly payments if they prefer to receive the entire credit with their tax refund.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to AskPenny@thepennyhoarder.com.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.