Is our society finally catching up to our needs?
Motherly's 2021 State of Motherhood survey found that a whopping 92% of mothers feel society doesn't do a good job of understanding or supporting motherhood, but there are some glimmers of hope that some institutions, like our government, are starting to recognize the burden that families, especially mothers, bear.
As a response to the devastation caused by COVID-19, the Biden administration has ushered in a $1.9 trillion aid package called the American Rescue Plan, and it includes a temporary boost to the child tax credit.
Instead of $2,000 per child, for the 2021 tax year only, families could receive up to $3,600 per child, paid in monthly installments starting in July. The goal is reducing child poverty, so the amount you qualify to receive gets smaller as your income climbs. Here's how it works.
When do the credits start?
Advance payments are a key feature of this package. Instead of waiting to apply the child tax credit to your 2021 tax return, parents now have the option to receive monthly payments starting in July.
The timing is the same for everyone, unless you opt for a one-time payout, but the amounts will vary according to your income, number of children and their ages.
For example, a family with a three year old and a seven year old with a combined family income of $150,000 in 2020 would receive a check for $550 every month from July through December, for a total of $3,300.
Kiplinger has a calculator to estimate your monthly payouts.
How will I get the child tax credit?
While it's not clear yet how the tax credit payments will be sent, experts say we might expect a similar experience to the recent stimulus checks. Those who've set up a direct deposit will automatically see the funds in their bank account. Those who haven't will receive checks in the mail from the IRS.
Who qualifies for the child tax credit?
The goal is helping families based on need, so your income, number of children and their ages will be the biggest variables. Overall though, there are a few basic requirements.
Legally qualifying children must be:
- Ages newborn to 17 years old
- US citizens, US nationals or US resident aliens and have a social security number
- Legal dependents, living with you for at least half the year and also related to you (adoption is included). You must provide more than half of your child's financial support including shelter, food, utilities, clothing, education and so on
- Parents of qualifying children must have an income of $2,500 or more
How much is the child tax credit?
For the 2021 tax year only, the child tax credit has been raised from the original $2,000 child tax credit which was only sent for children age 16 or younger.
2021 payouts by age:
- Qualified children ages five and under may count for up to $3,600 (up to $300 per month from July through December).
- Children between six and 17 could count for up to $3,000 (up to $250 per month from July through December).
- 18 year olds or college students under the age of 24 could count for a one-time payment of up to $500.
Payments vary according to income (becoming entirely phased out at the highest income levels), number of children and their ages. There are many child tax credit calculators available including this one by Omni Calculator.
What can I spend it on?
Whatever you like. This is not a loan and it's not taxable income.
Unless something dramatic happens*, say your income changes dramatically in 2021 (congratulations!), and you end up with a higher tax bill by next April, this money is yours to use as needed.
Many experts suggest paying off credit cards, putting money aside for college or simply using this cash to pay bills.
*Your child tax credit is calculated by your 2020 taxes, including your income and number of children. The assumption is that both will remain the same for 2021. If your job or family structure changes this summer, the IRS plans to have a portal available by July where you can update your information, and should conceivably receive an updated payment plan.
Do I have to pay it back?
No. The child tax credit is like a tax refund, but given out in advance. Most parents will simply receive the payouts and use them as needed.
There are two unique scenarios in which you might need to repay the child tax credit (and in both cases, repayment is likely to happen through your 2021 tax return next year: either adding money to your bill or taken out of your return).
- If a mistake was made and you received more money than you actually qualified for, it's possible that you'll have to pay back some of those funds.
- If you have a sudden increase in income during 2021 OR your family status changes (for example, divorce or loss of a child), your 2022 income taxes could be affected. You may receive a larger tax bill to cover the difference between what you once qualified for (and received) and your current situation.
Will it affect my tax return?
No. The child tax credit payouts are not taxable income. Unless there is an error in the amount of your child tax credit payments, your taxes should remain the same. If you owe money when you file your 2021 tax return, your bill will be reduced by the amount you qualify for. If you have a refund coming, your payment will include the child tax credit you qualify for.