Parents can look forward to some extra cash beginning on July 15, when the IRS starts issuing an expanded child tax credit to millions of families.
The boosted payout, authorized by President Biden with the passage of the American Rescue Plan, offers an annual payment of $3,000 for every child ages 6 to 17 and $3,600 for every child under age 6. Individuals earning less than $75,000 and married couples jointly making less than $150,000 are eligible for the boosted credit.
If families earn too much to qualify for the sweetened tax credits, they can still receive the $2,000 credit for their children if their income level is below $200,000 for individuals and $400,000 for married couples.
About 39 million households, which accounts for about 88% of all children living in the U.S., will receive the monthly payments without doing anything, the IRS said Monday.
Families will receive a monthly payment – roughly $250 to $300 per child – instead of an annual lump sum. Half of the credit will be paid out beginning July 15. From there, the IRS will deliver the monthly payments on the 15th of each month through December 2021, unless the 15th falls on a weekend or holiday.
The remaining half will be a credit toward next year's taxes, meaning that families will need to file their 2021 tax returns in order to receive it. Any money left after covering taxes will be paid directly to families.
Families will receive that money by direct deposit, a check or prepaid debit cards, the IRS said.
There are many rules that accompany the child tax credit; for instance, if divorced, only one parent can claim the credit. The child must live with you for at least six months out of the year in order to qualify.
Under the previous rules, families could receive up to $2,000 for each child age 16 and younger. The new law increased the age limit to 17.
For instance, a family with a 10-year-old and a 4-year-old would be eligible for a credit of $6,600 if they earn less than $150,000. They would receive a credit of $550 per month through December, and then $3,300 when they file their taxes in 2022.
Experts say the overhaul of the 24-year-old child tax credit could have significant implications for millions of low-income families: More than 4 million children could be lifted out of poverty, according to one analysis conducted by the Center on Budget and Policy Priorities at Columbia University.
Still, the quirky design of the law sometimes means the poorest families are overlooked and do not receive any money; families who owe little or no income taxes were only eligible for up to $1,400 per child, rather than the $2,000 benefit provided to wealthier families, according to the Brookings Institute.
The expanded credit will only last for one year before it expires; however, Democrats are seeking to extend it for five years until 2025 with the passage of the American Families Plan.