After the American Rescue Plan was passed earlier this year, we wrote this post about updates to the Child Tax Credit and how families could take advantage of new money available to help cover the cost of child care.
Now, those dollars are starting to be distributed to millions of families across the country.
Starting this week (July 15th), most U.S. households with children will start to receive monthly payments, thanks to an expansion of the federal Child Tax Credit.
When most people think of the latest Covid-relief law, they think of stimulus checks and unemployment benefits, but an expansion of the federal Child Tax Credit will also be extremely beneficial for families with children.
In the past, families would receive the funds as a credit on their taxes when filed annually. But now, families will receive half of the tax credit as monthly payments for more immediate benefit, and the rest of the tax credit—worth between $3,000 and $3,600 per child, depending on their age—will be paid out as usual when families file taxes next spring.
Now, families will receive up to $250 a month for every child between 6 and 17 years old, and up to $300 a month for children under 6. Most families (approximately 39 million households, covering 88% of children in the United States) will receive these monthly checks automatically, according to the Internal Revenue Service.
How much is the Child Tax Credit?
Typically, the Child Tax Credit is provided annually to parents, as a deduction for how much they owe on their income taxes. Prior to these new changes, this deduction was up to $2,000 per dependent child under 17, and it phased out for those earning more than $200,000, or $400,000 for couples filing jointly.
However, low-income families who owed less in taxes than the amount of the deduction could only receive part of that deduction.
Now, children as old as 17 now count as qualifying dependents, and low-income families can receive the full value of that tax credit, even if they have no earned income to file on their taxes.
The amount received per child is also higher for most families, increased to $3,000 for each kid between 6 and 17 years old, and increased to $3,600 for each child under age 6.
Who is eligible for the Child Tax Credit, and for how much money?
If your income is less than $75,000 as a single filer, less than $112,500 for head-of-household filers, or less than $150,000 for married couples filing jointly, you can expect to receive the full amount of the credit.
If your income is above these amounts, the credit amount begins to phase down. For example, those making more than $144,500 as a single filer and $182,000 as a married filer are eligible for the previous $2,000 per child, according to the Congressional Research Service.
You should check to see if you have received a letter in the mail from the IRS in recent weeks, outlining the Child Tax Credit and how much you will receive.
If you did not receive anything, check out this online tool to see how much you will receive.
When can I expect to receive the money?
If you filed tax returns for 2019 or 2020, or you signed up to receive a stimulus check from the IRS, you don’t need to do anything to start receiving the monthly payments.
If you didn’t file taxes, you should use the IRS’s online tool, called the “non-filer sign-up tool,” to receive your money.
New Child Tax Credit payments will be distributed on the 15th of each month through December, except for August, when it is scheduled for the 13th because the 15th falls on a weekend.
Do families have to receive the payments monthly, or can you choose to receive it all at one time?
While it’s too late to opt out of the initial July 15 payment, if you would prefer to receive your credit as a lump sum next year, you can opt out of payments starting in August using the online IRS portal.
Are there restrictions on how I spend the money?
Even though the new funds are specifically meant to reduce the cost of child care for families, there are no restrictions on how you use the money.
Will the tax credit go away after next year?
As of now, the pandemic stimulus law only expanded the tax credit for 2021. Congress would need to extend the changes into future years for the benefit to continue beyond 2021.
However, a fact sheet from the Biden administration says that the president “strongly believes that we should extend the new Child Tax Credit for years and years to come.”
I want to use this money to enroll in daycare or preschool. How can I find a school that has immediate openings?
At PreK.com, we’re excited that more families will have access to pay for child care, and our team is ready to help you find the perfect environment for your child. You can simply browse PreK.com for the best programs near you, or call us (877-773-5669) for help narrowing down your search and booking tours at some great nearby programs.