Millions of families will begin getting Child Tax Credit payments starting in July, IRS Commissioner Charles Rettig said Tuesday in testimony at a Senate committee hearing. "The IRS will be working hard to deliver this program quickly and efficiently," he added.
Though this is "exciting news," nothing is guaranteed in terms of a start date, cautions Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center. "Until the credit begins hitting bank accounts, when they will show up remains in doubt."
The new, expanded Child Tax Credit is part of the American Rescue Plan Act that President Joe Biden signed into law in March. It institutes a fully refundable Child Tax Credit for 2021, increasing the maximum amount eligible parents can receive for simply having a qualifying child dependent to $3,000 annually per child ages 6 to 17. For children under the age of 6, the maximum credit equals $3,600 annually.
Democrats are hoping to make the temporary credit enhancement permanent.
The payments expected to begin in July are an advance on the 2021 credit and would amount to half of the credit's full value. Eligible taxpayers will be able to redeem the rest of the credit at tax time next spring.
When the House passed the American Rescue Plan, it specified monthly payments of half the total value of the credit would be made from July through December, Maag says. The final language of the American Rescue Plan Act specifies the payments will be made "periodically."
The plan is to deliver advanced Child Tax Credit payments monthly, Rettig said Tuesday: "We fully expect to launch in July. We expect to launch with payments going out on a monthly basis." He cautioned: "If we're unable to, you'll hear from me."
If you receive a payment in July, though, that doesn't necessarily mean you'll get one on a monthly basis for the rest of the year. "I think the intent is that there will either be monthly payments starting in July, or if that doesn't work out, two quarterly payments, presumably in September and December," says Maag.
The final "periodic" language gave lawmakers "wiggle room," says Henry Grzes, lead manager for tax practice and ethics at the American Institute of Certified Public Accountants. Still, Grzes believes the IRS is "intending to make this a monthly payment beginning in July."
If the IRS is able to deliver the advance credit monthly, the per-child amounts generally will be up to $250 for older children and up to $300 for children under the age of 6.
Implementing the payouts, Rettig said, will cost nearly $400 million and require the hiring of 300 to 500 people to get the new payment system and electronic portal in place.
In order to provide families with relief quickly, the IRS will look at your 2020 income tax returns when calculating the credit eligibility.
You'll qualify for the full credit if you're a single filer with a modified adjusted gross income of less than $75,000, a single parent filing as head of household with a MAGI less than $112,500, or a married couple filing jointly with less than $150,000 in income. The credit phases out for taxpayers with higher incomes.
Wealthier families who may not qualify for the enhanced credit in 2021 can still claim the previous Child Tax Credit of up to $2,000 per child, which begins to phase out at $200,000 in income for single or head-of-household filers and at $400,000 for married couples filing jointly.
If you qualified for the enhanced Child Tax Credit based on your 2020 income but your 2021 income exceeds the eligibility requirements, you'll need to pay back the advanced credit when you file your taxes next spring.
Use the calculator below to find out how much your family could get.
To receive an advance payment of the credit in July, families with children must file a 2020 tax return, Rettig said. Without that return, the agency will not have the information it needs to deliver the credit.
"Tax returns get us the information, so we know the amount of the credit that we are to provide by law under both the CTC [Child Tax Credit] and the EITC [Earned Income Tax Credit]," Rettig said. Current banking information is "extremely critical" to getting payments out this summer, he added.
The IRS will launch an online portal by July 1, Rettig said, but won't have the resources to build it until after tax filing season ends. Once the portal is available, recipients can log in to update their information if their circumstances have changed.
Video by Stephen Parkhurst
"The best way to get the information to the IRS is to file a tax return. And the earlier you file, the greater the likelihood that it will be in IRS' system," says Maag. "At this point, people who have not filed a tax return will not have an opportunity to claim payments in advance of filing a 2021 tax return, which happens early in 2022."
If you had a child or adopted one in 2020, the only way to claim the Child Tax Credit for your new family member is to file your taxes, Grzes explains. "The IRS doesn't know that [you had a child in 2020] until you actually file the 2020 return," he says. "You'll have access to more money by filing sooner."
The deadline to file your federal taxes has been delayed by the IRS to May 17. Many states have followed suit, delaying filing deadlines as well, while some are still requiring taxpayers to file by April 15.
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