On July 15, millions of parents started receiving monthly child tax payments to help aid them through the pandemic. The credit was sent to about 39 million families and 65 million kids, according to the IRS.
There’s much confusion surrounding the credit and so much more to know. How does it work? What is a qualifying child? How are the payments sent? Rest assured you’re not the only one asking these questions.
What is The Enhanced Child Tax Credit?
In March, the government created the enhanced child tax credit when President Joe Biden signed the American Rescue Plan. For 2021, the maximum credit is $3,600 for children under six years old and $3,000 for those between the ages of six and 17.
Half of the credit will be given as an advance on 2021 taxes in six monthly installments. Parents getting the full benefit will receive $300 per month for young children under six years old and $250 for older children.
The credit doesn’t have a limit on the number of children that can receive the credit.
Who Qualifies for the Maximum Credit?
The majority of American families qualify for something, whether it’s the entire credit or partial. The total credit is available for married couples with children. These couples file taxes jointly and have an adjusted gross income of less than $150,000 or $75,000 for individual adults.
The credit gradually dissipates for taxpayers who make more money and is entirely unavailable for those who make $95,000 and married couples who make $170,000 when they file jointly. This process is how a qualifying child is determined.
Taxpayers making more than that will still be eligible for the regular child tax credit, which consists of $2,000 per child under 17 years of age that make less than $200,000 yearly, or $400,000 for married couples.
Do You Need to Do Anything?
Most people who have filed their taxes don’t need to do anything. The IRS uses 2020 tax returns to determine if a family is eligible. For families who haven’t filed taxes yet, the IRS uses 2019 taxes.
Non filers that used the IRS non filer tool in 2020 to register their eligible family members for stimulus payments will be enrolled automatically.
The IRS sent about 36 million letters to any family that could be eligible for the credit. Later that month, the IRS sent letters explaining the number of money families would receive. The IRS also has an eligibility tool available online in both English and Spanish. Families can use it to determine if they’re eligible for the credit.
Some people need to do something additional to make sure they get the credit or to make sure they get the total amount of money. Those not filing taxes because they don’t have enough income, but have children eligible, can register with the nonfilers’ tool.
You can also check if you’re registered for direct deposit and determine what account The IRS will deposit the money into through the IRS Child Tax Credit Portal. You can register for direct deposit to change your bank account through the portal. You can also look at your payment history.
In August, people were able to update their mailing addresses. Eventually, you’ll be able to change information such as income, marital status, dependents, and re-enroll if need be.
How Are the Payments Sent?
Most payments are sent by direct deposit, much like stimulus checks. 80% of eligible families will receive their money this way. The IRS gets the information from your tax return and uses the same bank you use to get your taxes.
If you don’t have a direct deposit, the IRS will send paper checks to many families and eventually send the debit cards payments.
When Are the Payments Sent?
On the 15th of every month, all payments are made unless the 15th rests on a weekend or holiday. In this situation, the IRS will send the money on the closest business day. The first payment was issued on July 15 and has subsequently continued throughout the months.
The payments are only scheduled to continue through 2021. The second half of the child tax credit will be received by families when they file their taxes for 2021 in 2022. However, this could change as President Biden has discussed enhancing the credit for additional years or even making it a permanent payment.
Can You Opt-Out?
Families can opt-out of receiving the monthly payments for the credit through the Child Tax Credit Update portal. For families who choose this option, they will no longer obtain the monthly payments. They will receive the full credit they are eligible for when they file their 2021 taxes next year.
Families may choose this option because they don’t need the monthly payments immediately or prefer to get the total amount in their tax refund. Taking the full credit can also offset taxes owed for families anticipating paying in.
Lloyd & Hodge Is Here To Help You
If you find these tax changes overwhelming, we have good news. We can help.
Perhaps you’re still on the fence about hiring a professional. If you are unsure of your tax obligations and don’t want to face the increasingly higher risk of being audited, hiring a tax management professional like the experts at Lloyd & Hodge can be a life-saver.
We can help you with tax management, planning your expenses and reducing your tax obligation throughout the year. In addition, Lloyd & Hodge offer a variety of accounting services, including bookkeeping, payroll, cashflow & budgeting analysis, and personal bill pay.
If you’re tired of muddling your way through your finances or simply don’t have the time to properly manage them, contact Lloyd & Hodge today and let us handle the heavy lifting and number crunching, so you can get back to work.