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 this year 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.
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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, says Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center. The final language of the American Rescue Plan Act specifies the payments will be made "periodically."
The IRS has scheduled monthly payouts from July to December. Most benefits will be directly deposited into bank accounts on or around the 15th of every month. After this month's payment, the IRS says families can expect subsequent payments on Aug.13, Sept. 15, Oct.15, Nov. 15, and Dec. 15.
Those monthly installments will be worth up to $250 for older children and up to $300 for children under the age of 6.
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 advance payments of the credit, families with children must file a 2020 tax return, IRS Commissioner Charles Rettig said this spring. 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 also "extremely critical" to getting payments out, he added.
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"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.
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, explains Henry Grzes, lead manager for tax practice and ethics at the American Institute of Certified Public Accountants. "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."
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