The expanded federal child tax credit payments began arriving in the bank accounts of millions of Americans Thursday as the IRS reported issuing the first $15 billion in direct deposits to nearly 60 million children ages 17 or younger, according to reports.
But there are still many families who won’t receive the bonus money because they don’t qualify for the expanded credit — either because their income is too high or if a household’s capacity has changed due to situations such as divorce.
Single taxpayers who earn $95,000 and joint filers who earn $170,000 per year do not qualify for the expanded credit, although people who earn more than these amounts will still receive a regular credit of $2,000 per child when they file their taxes in 2022 — which is considered a standard tax credit for single taxpayers who earn less than $200,000 and married couples earning less than $400,000.
Families eligible for the expanded credit, however, have the potential to receive up to $3,600 per child in the form of $300 monthly installments. The credit temporarily increases the standard child tax credit from a maximum $2,000 a year per child and will be paid out in advance of next year’s tax filing season.
For children ages 5 and under, the new credit is $3,600, or $300 a month; and for ages 6 to 17, the new credit is $3,000, or $250 a month.
The income cutoff to receive the expanded tax credit is $75,000 for single taxpayers and $150,000 for joint filers, with a $50 reduction in the total expanded payment for every $1,000 of income above those limits.
In general, eligible taxpayers who receive the expanded credit will not need to pay taxes on the money because it’s not considered income.
But some taxpayers may want to consider opting out if their income will rise above the cutoff threshold in 2021, or if they are divorcing a spouse who they know will claim a child as a dependent on their 2021 tax return. These specific scenarios would make a taxpayer ineligible to receive the credit, and the money would have to be paid back to the IRS during the 2021 tax filing season.
In all, about 36 million households are in line to receive the expanded payments, according to the IRS.
Anyone who does receive the expanded payments should keep track of the amount of money they receive because it will need to be reported on tax returns for 2021. The IRS does plan to send letters to households in early 2022 stating the total amount a family received from the expanded credit.
The expanded tax credit payments are being provided as part of President Joe Biden’s groundbreaking $1.9 trillion pandemic relief law known as the American Rescue Plan Act. The expanded credit is intended to help low- and moderate-income families navigate economic challenges that remain in the wake of the coronavirus pandemic.
The expanded payments will be sent by check or direct deposit over the next six months on July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15, according to a statement from the Treasury Department.
The plan was set up this way to get money in pockets sooner rather than making people wait to file next year’s taxes, but there’s also an option to unenroll from receiving advance payments and instead receive a lump sum credit when filing a 2021 return.
Still, some taxpayers are choosing to opt out of the monthly payments, preferring to claim the entire $3,600 or $3,000 tax credit on their 1040s, which is allowed.
About the Author
