What You Need To Know About The $3,000 Child Tax Credit
The $1,400 stimulus was only part of the American Rescue Plan that went into effect on March 11th. Congress approved $3,000 per child as a child tax credit, increasing to $3,600 for each child under the age of six.
Now that $1,400 stimulus payments have started landing in bank accounts, many households are starting to turn their attention to other payments. But those households will have to wait a little longer. The IRS currently has its hands full with tax season and stimulus payment processing, so getting child tax credits rolling will likely take a while.
If you’re eagerly awaiting your next IRS bank deposit, here’s what you need to know about when, where, and how your child tax credits will be processed.
What is the child tax credit?
COVID has been tough on many families, with most households needing to adjust to remote learning in one form or another. A 2020 child tax credit gave families $2,000 for every dependent under the age of 17.
The American Rescue Plan expands the 2020 credit. Those who fall beneath the income threshold will get $3,000, or $3,600 for kids under six. It also allows families with 17-year-olds to qualify. The previous credit was available only up to the age of 16.
Child tax credits are nothing new. They were first introduced in the Taxpayer Relief Act of 1997 as a way to help families. But the Tax Cuts and Jobs Act bumped up the amount for the first time, and the increased amounts were continued during the pandemic to strengthen the economy.
The child tax credit under the American Rescue Plan is fully refundable. This is notable because ordinarily, the child tax credit is nonrefundable. A nonrefundable tax credit is capped at your own tax liability. So if you owe $1,000 on your taxes, your $3,000 would only help you with that $1,000. Being nonrefundable means you’ll get the full amount you’re due no matter how much you owe on your 2021 taxes.
First, you’ll need to claim at least one child, who is 17 or younger as a dependent to qualify. If you have a child under the age of six, you’ll qualify for the higher payout of $3,600 per child.
The age determination is made based on the tax year. In this case, the text includes all children who are “age six as of the close of the calendar year in which the taxable year of the taxpayer begins.” So in this case, your child will need to be aged five or younger on December 31, 2021, to get the higher amount.
There’s also an income ceiling. If you made $95,000 as a single filer in 2020, or $170,000 as a couple filing jointly, you won’t qualify for the child tax credit at all. If you make less than $75,000, or $110,000 filing jointly, you’ll get the full amount.
Between $75,000 and $95,000 (or $110,000 and $170,000 for couples) is where it gets sticky. The amount you’ll get will be reduced based on your 2020 adjusted gross income.
When will payments start processing?
Now for the information you really want to know. When will that money land in your account?
As with the other stimulus payouts, the IRS is handling getting the money from the government to your bank account. Right now, the IRS has its hands full with getting your tax refund and your $1,400 deposit into your account, so that will have to come first.
So the answer to the question is, no sooner than July. Originally, the IRS had a July 1st deadline to set up a portal, but with the tax deadline being moved to May 17th, it will be even longer before the IRS can gather the resources to get things set up.
How you’ll be paid
As with the stimulus payments, the best thing you can do is make it easy for the IRS to get the money into your account. If you haven’t already, make sure you set up direct deposit as your method of payment.
But as to how much you’ll get in July, August, September, and beyond, that’s another focus of discussion. Unlike the other stimulus payments, you won’t see the entire tax credit in your account all at once. It was written so that the first half of the credit is issued in installments. The other half of your tax credit will be claimed on your 2021 taxes when you file in 2022.
Initially, these early payments were going to be issued on a monthly basis, but that’s changed, as well. The final bill read,
“The Secretary shall establish a program for making periodic payments to taxpayers which, in the aggregate during any calendar year, equal the annual advance amount determined with respect to such taxpayer for such calendar year.”
In other words, the IRS can issue the payments as it deems appropriate, rather than making sure they come into your account once each month. So even if “periodic payments” begin dropping into your account over the summer, it could be months before you see the entire half of the credit you’re getting this year.
How much will those installments be? The goal was to issue the funds in six monthly installments of $250 per child (or $300 for children under six), running from July to December. But with the change in date, the amount of each check and in what intervals it will be sent are still unknowns.
Who’s a dependent?
The IRS uses a multipart test to determine if someone is a dependent when you file your taxes. Generally speaking, the person will need to be considered related to you. Each child will also need to live with you at least six months out of the year.
Will the child tax credit be permanent?
The $3,000 tax credit was designed to be a one-time thing, available specifically to help ease the financial toll COVID-19 has taken on families. However, some lawmakers want to see this payout become permanent. But for this to happen, it would have to be approved under a different bill.
One bill, the American Family Act, proposes a permanent $300 per month for each child under age six and $250 per month for children between six and 17. It also makes the child tax credit fully refundable. That bill is currently making its way through the Senate.
The child tax credit is coming, even if it takes a little longer than originally planned. While you’re waiting for your tax credit, make sure you file your 2020 taxes, as you’ll need to have filed to qualify.
Also, make sure you choose direct deposit for your refund payment method to get the funds in your account as soon as possible. In the meantime, stay tuned to the IRS website to find the latest news about timelines and tools to track any payments you still have coming.