MURRAY – Murray CPA Mike Pierce says the new, monthly federal Child Tax Credit will help lots of families make ends meet for the rest of the year, but parents should keep in mind that if they participate, they will get a smaller refund when they file their tax returns next year.
Under the American Rescue Plan Act that became law earlier this year, each Child Tax Credit payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17, the IRS website says. Normally, anyone who receives a payment this month will also receive a payment each month for the rest of 2021 unless they choose to unenroll in the program through the IRS website. Payments are automatic, so aside from filing a tax return, families don’t have to do anything if they are eligible to receive monthly payments.
The IRS is urging people who normally aren’t required to file a tax return to explore the tools available on IRS.gov. These tools can help determine eligibility for the advance Child Tax Credit or help people file a simplified tax return to sign up for these payments as well as Economic Impact Payments and other credits you may be eligible to receive.
The first batch of advance monthly payments went out last Thursday, July 15, and were worth roughly $15 billion, the IRS said. The payments reached about 35 million families today across the country, and about 86% were sent by direct deposit. Besides the July 15 payment, payment dates are: Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.
“Starting July 15, they started sending out checks to people who qualify, based on their tax return from 2020 that most of them have already filed,” said Mike Pierce, a certified public accountant and partner with Pierce, Keller & Associates PLLC in Murray. “They’ll do direct deposit in most cases, and they’re going to do that between now and the end of the year. In essence, what they’re trying to shoot for is to give taxpayers with children half of what they would get between July and December during the year to help them out.
“The payments start phasing out for married couples filing jointly at $150,000 (annual household income). What will happen is, if you do participate in this, you’ve already got half of it and then if you fully qualify, you’ll get the other half when you file your tax return.”
Pierce said he has been reading a lot about the Child Tax Credit and the expectations for it. He noted that President Joe Biden wants to make the monthly payments permanent, but regardless of what might or might not happen with Congress in the future, parents will at least see their household income boosted for the next six months.
“The whole idea is, the government is stating that this is going to lower child poverty by half,” Pierce said. “That’s the purpose of it. Whether it will or not, that’s obviously yet to be determined, but the idea of giving this money to people with children – and more for the younger children – is that it’s supposed to help a lot of families come out of poverty.”
Pierce said that while the IRS is allowing people to opt out of these monthly payments if they wish, he hasn’t seen many people choose to do that yet. He said some people might choose to opt out because they like getting a large refund every year after they file their tax returns. For example, he said he has advised clients in the past to adjust their withholdings so they can take home more pay each month, but some of them would rather have more taken out by the IRS so they can use their annual tax refund like a savings account.
“That might be a vacation fund for some families,” he said. “It’s all new, and it’s a good thing if you’ve got kids in those age groups and your income level is going to work. You can opt out, but it all comes out exactly the same between now and next filing season after the first of the year. Whether you opt out or take it, you’re going to get the same amount of money, so it doesn’t really affect your return.”
To qualify for advance Child Tax Credit payments, the IRS website says you — and your spouse, if you filed a joint return — must have:
• Filed a 2019 or 2020 tax return and claimed the Child Tax Credit on the return; or
• Given the IRS your information in 2020 to receive the Economic Impact Payment using the Non-Filers: Enter Payment Info Here tool; and
• A main home in the U.S. for more than half the year (the 50 states and the District of Columbia) or file a joint return with a spouse who has a main home in the U.S. for more than half the year; and
• A qualifying child who is under age 18 at the end of 2021 and who has a valid Social Security number; and
• Made less than certain income limits.
According to CNBC, the full child tax credit is available to individuals who earn up to $75,000 and couples earning up to $150,000. From there, the credit will be reduced by $50 for every additional $1,000 of adjusted gross income earned. Families meeting the income criteria will receive a $3,000 annual benefit per child ages 6 to 17, and $3,600 per child under 6. This is also the first time those with children aged 17 will receive the tax credit, CNBC reported.