What to Know About New Child Tax Credits Starting in July

The IRS says new monthly child tax credits will hit bank accounts starting July 15. Some of you will see monthly payments of up to $300, per child.

It’s part of the American Rescue Plan signed into law in March. It increased the overall child tax credit, expanded it to include children turning 17 this year and added another annual $600 benefit per child under six years old.

Taxpayers with kids usually see the child tax credit when they file their income taxes. Half of the newly enhanced child tax credit will be distributed in monthly payments from July through December as an advance credit. You can claim the other half of the credit when you file your 2021 federal income taxes.

Read on to learn more about who qualifies for the enhanced credit.

Who gets the max? It depends on your income and age of children

Families will receive up to $3,000 per child between the ages of six and 17 for the 2021 tax year or $3,600 per child under six.

Your income is also part of the equation.

The IRS says you’ll receive the maximum enhanced credit if your adjusted gross income is 75,000 dollars a year or less for a single filer, 112,500 dollars or less for heads of household. Joint filers or qualifying widow or widowers who make 150,000 dollars or less will also receive the maximum enhanced child tax credit.

The enhanced credit amount phases out for higher incomes.

For example, if you’re married with a combined income of 100,000 dollars a year and you have a toddler, you would get a $3,600 child tax credit for 2021. The monthly payments would add up to $300 per month for six months. The rest will be factored in as a credit on your 2021 federal income tax return.

What do I have to do to get the payments?

North Texas CPA Kedra Flowers explains you don’t have to opt in to receive the monthly payments.

“If you do qualify, there's nothing that you need to do. The IRS is going to compute how much you qualify for and it's going to begin those payments for the remainder of the year,” said Flowers.

The IRS is using information from your 2020 tax returns - or 2019 if that’s the most recent return processed.

“They’re similar to what happened with the stimulus. People are looking and going, why didn't I get that payment? Because they have not filed or those returns have not been processed,” Flowers explained.

What if I don’t want the monthly payments?

Since this is an advance tax credit, Flowers explains you’ll have to settle up with the IRS when you file your 2021 return if it turns out you didn’t qualify for the payments.

“If you did not qualify for that credit, you're going to have to pay that money back. It is going to be added or taken away from your tax refund or added to what you owe,” Flowers said.

Flowers explains there is an exception to repaying an overpayment for a single filer who makes less than 40,000 dollars a year or couples who make less than 60,000 dollars a year.

If you’re not sure you’re eligible for the credit for the 2021 tax year and worry about having to pay back overpayments, Flowers said consider opting out of the advance monthly payments and claiming the full credit when you file your income taxes.

You can also opt-out of the monthly payments if you simply prefer to get a bigger tax refund.

The IRS published this online portal where taxpayers can unenroll from the advance payments..

The IRS said the payments will come to you the same way you received your tax refund or stimulus payments. For most people, that’s through direct deposit into their bank accounts.

If you didn’t file taxes the last two years and you didn’t register for stimulus payments, you can use the non-filer sign-up tool here.

The enhanced child tax credit is temporary – for the 2021 tax year.

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