Every year, millions of Americans file their taxes hoping to receive a refund. This refund is the result of a combination of two possible factors: too much money withheld from your paycheck, and/or you qualify for special tax credits or a combination of both situations. Usually, you would have to wait until you file your taxes to receive the refund. However, this year thanks to the American Rescue Plan Act (ARPA), you may be eligible to receive a portion of the Child Tax Credit in advance through the “Advance Child Tax Credit Payments” program.
Here is what you need to know about this credit:
1. Who is eligible for these payments?
Generally speaking, taxpayers may claim this credit if they:
- Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or had previously given their information to the IRS using the “Non-Filers: Enter Payment Info Here tool”.
- Have a “qualifying” child who is a citizen, national or resident alien of the United States and has a Social Security number.
- Have their own valid Social Security Number or ITIN (for the taxpayer and spouse if filing jointly)
- Lived in the US for more than half of the year (applies to all people in the tax return). Most importantly, the child dependent has to have lived with the taxpayer for more than half of the year.)
- Fall within certain income levels set by the IRS. For more information, visit this IRS website.
2. How much is the advanced tax credit worth?
Qualifying taxpayers that would normally receive a Child Tax Credit in 2021 would be able to receive monthly payments in advance for half of their estimated 2021 Child Tax Credit. The final amount depends on two factors:
- The ages of your children: For 2021, the Child Tax Credit is $3,600 for qualifying children ages 5 and under at the end of 2021 and $3,000 for children ages 6 through 17 at the end of 2021.
- Your Modified Adjusted Gross Income: The Child Tax Credit begins to be reduced or is eliminated if you make too much money. For more information about the income thresholds, visit this IRS link under “Child Tax Credit Changes”.
The IRS has a useful calculator that can help you determine your eligibility for the credit and there are other calculators such as the Kiplinger calculator or the NBC calculator that can help you estimate the amounts. Keep in mind these are not official calculators and they only provide estimates.
3. What do I need to do to get these payments?
If you qualify for these payments, the first payment will be direct deposited into the last bank account the IRS has on record on or around July 15th and they will continue each month until December 2021.
Finally, the IRS has created two online portals to help: One of the portals allows parents to opt out of the advance payments and receiving the credit as a lump sum amount like previous tax years. The other portal is for those who normally do not file tax returns (non-filers), as well as families that need to change personal details, like the amount of dependents.
Still have questions?
NYLAG Financial Counselors can help you understand how this credit works and can help you estimate how much you could expect. Counselors can also refer you to VITA sites that can help you file your taxes and answer other tax questions if needed. If you are currently working with a NYLAG financial counselor, reach out to them now to discuss your tax planning options.