If you're a parent, you may get money from the government today, as the IRS begins sending out its first round of monthly Child Tax Credit payments. More than 35 million households could receive an average payment of about $423 as part of the American Rescue Plan Act.
In June, the IRS sent out letters to inform eligible families they'd be receiving the credit, which is based on their most recent federal tax return. The credit is fully refundable, and families don't need to have any taxable income to qualify.
Most eligible families will receive a total tax credit of $3,600 for children younger than 6, and $3,000 for those between 6 and 17. Half of the money will be distributed as monthly payments from now through December. The second half will be distributed after families file their returns next year.
Video by Helen Zhao
The IRS says the credit will reach 90% of children, and the Center on Budget and Policy Priorities predicts it will lift about 4 million of them above the poverty line.
If your taxes are up to date, you don't have to do anything to get the credit. If you haven't filed your 2020 return, check the IRS website to make sure your data is current. Most payments will be made via direct deposit, while others will be sent as a check or debit card.
In June, the IRS launched an unenrollment tool, allowing households to opt out of monthly Child Tax Credit payments and instead receive a lump sum when they file their 2021 tax return next year. That can be a good idea for those who've gotten a substantial raise or big windfall this year, since they'll be on the hook to pay the IRS back if they don't qualify for the credit on their 2021 return.
"If you don't usually receive a refund, then the advance payments could actually cause you to owe more when you file your 2021 taxes," Ben Wacek, a Minneapolis-based certified financial planner, recently told CNBC Make It.
For now, the enhanced Child Tax Credit is only available for the 2021 tax year, but President Joe Biden has proposed keeping it for longer as part of his administration's infrastructure bill. Treasury Secretary Janet Yellen says she supports the enhanced credit being made permanent.
"I think this is something that's very important to continue," Yellen told NPR on Thursday. "It's a very important program that will do a huge amount to relieve child poverty, which has been a tremendously important problem in the United States."
More from Grow: