Get Set to Get Your Monthly Child Tax Credits
There is $3,600 coming your way as a new parent. Make sure you are set up to get it!
When I first learned about the Child Tax Credit, my head was spinning. For higher income families it was pretty straightforward, but it got very confusing for lower income families, with multiple parts and lots of rules. The way it was structured meant that families making below $24,000 could not get the full $2,000 because the refundable portion stopped at $1,400. Eligibility didn’t even start to kick in until your family had at least $2,500 of earned income. These factors meant that 27 million children under 17 were in families that couldn’t receive the full $2,000 because their earnings were too low. In effect it was punishing children if their parents didn’t make enough. That has thankfully now changed. Read on to learn how it changed, why we support it, and to make sure you get your $$$!
What changed for 2021?
Here are the three biggest changes to the Child Tax Credit made possible by the American Rescue Plan:
- It took away the work requirement. This means that families can access this money regardless of whether they have earned income or not.
- It is fully refundable meaning that the money can come back to your family as cash, even if you don’t owe any taxes.
- Half of the total credit amount is advanceable, meaning you will receive it in monthly payments starting in July 2021.
It also expanded eligibility to include children who are 17 and to children living in Puerto Rico and the U.S. Territories.
How much money can I expect?
Half of your total credit value will be accessible July-December 2021 and the other half will be received on your 2021 tax return (the one you file a year from now in 2022).
Let’s take an example. If you are expecting $3,600 for your baby, you can access half of that in 2021 (so $1,800 in 2021) and then the other half ($1,800) as part of next year’s tax refund. You then take that first $1,800 and divide it by 6 months to get $300 each month! That’s your monthly payment estimate.
When can I start getting my money?
You should start receiving money in July and will receive monthly payments each month through December 2021.
How do I know that I qualify?
Do you have a qualifying child dependent that you claimed on your 2020 taxes? Do you make less than $112,500? Does your child have a SSN?
If so, then you are eligible to receive the full $3,600 for each child 5 or under, and $3,000 for children 6 to 17. Remember, only one parent or guardian can claim this money for the child! The IRS will use the information on your 2020 tax return (filed this year in 2021) to help inform eligibility.
Here are some more eligibility criteria to check:
- Your child must have a SSN.
- Child must live with you for at least six months of the year (or for half the time since born in 2021).
- Parents who share custody of a child cannot both get the tax credit.
How can I be sure to get my money?
The fastest and most effective way to make sure you are in the IRS system to get this money is by filing your 2020 taxes and making sure you get your refund via direct deposit. Think about it, if you had a child in 2020 and didn’t file your taxes yet, the IRS doesn’t know that child exists! You have until May 17th, so there’s still time. Remember, you can benefit from filing taxes even if you don’t legally have to.
The IRS will also be building a portal for people to input information, but it doesn’t exist yet. Families will be able to update their info in the portal and also opt to not receive their full amount until 2020 if they want to.
Who should consider using the IRS portal?
Again, the IRS portal isn’t built yet, but if you fall into one of the following scenarios, you will want to update your info in the portal:
- Did you have a baby in 2021? The IRS doesn’t know, so if you want to get monthly payments of the Child Tax Credit that you will need to sign up in the portal.
- If you don’t want to get the monthly payments because you know your situation will change and someone else will be caring for and claiming the baby on their 2021 taxes or you’d rather get the money all at once on your tax return! Remember if you take money from the IRS that you are not owed, you will have to pay it back as part of your 2021 tax return.
Why are we so excited about this benefit?
Experts at the Urban Institute estimate that the key pieces of the American Rescue Plan, including this advanceable child tax credit component will cut child poverty from 13.7 percent to 6.5 percent.
These changes not only mean that this is the largest cash support for low-income children this year, but they also have really important race implications. Research by Goldin and Michelmore shows that the old way that the credit was structured meant that the vast majority of children in households in the bottom ten percent of income didn’t qualify for the credit; moreover, only half of Black and non-Hispanic children were eligible for the full credit, compared with three quarters of white and Asian children. Removing the income requirement makes the credit more equitable.
Now that I know that money is coming, can you help me earmark a piece for savings?
Want help putting a piece of the funds aside to help you hit a savings goal? Knowing that this extra money is coming is huge, and a great opportunity to make progress against those savings goals. You can get help setting and hitting a saving goal with support tailored to new parents.