ST. LOUIS — If you're a parent, chances are your bank account just got a boost July 15 as part of the Biden Administration's American Rescue Plan that calls for monthly payments to parents from now until the end of the year.
This year, the child tax credit increased from $2,000 for each child to $3,000. Parents of children younger than 6 will get up to $3,600. The plan also gives parents of 17-year-old children a break.
Up to half of the year's total tax credit will be given out during the final six months of 2020. That means parents could get up to $300 for each child on the 15th of each month. There are also phase-outs on these benefits based on income — couples filing jointly can make up to $440,000 a year together and still get a tax break on their children.
Most American families will get some sort of credit, but it can still be complicated. What if you didn't get your credit? What if you share custody? What if you want to opt-out?
Here are five answers to some of your burning questions. We searched for your answers and had help from Rebekah Tucker, a manager at Anders CPA + Advisors based in St. Louis:
Question: Still confused about who will get the child monthly tax credit and how much. What about relatives caring for a child or foster children?
They have to be a qualifying child. There are different qualifications for who is a qualifying child versus who is a qualifying relative. If you can claim them as a qualifying child, and they're under the age of 17, then you could be eligible to claim them for the child tax credit. If they are a relative of a different relation, they're not eligible for the child tax credit.
Question: What are the income limits?
The child tax credit is reduced in two phases. It will ultimately be based on 2021 adjusted gross income (AGI) when filing in the spring of 2022.
- The phaseout for the additional credit ($1,000 additional for children ages 6-17; $1,600 additional for children ages 5 and under) is when AGI is between:
- Single $75,000 – $95,000 (ages 6-17) / $107,000 (ages 5 and under);
- Head of Household $112,500 – $132,500 (ages 6-17) / $144,500 (ages 5 and under);
- Married Filing Joint $150,000 – $170,000 (ages 6-17) / $182,000 (ages 5 and under).
- The phaseout for the “original” credit ($2,000 for children ages 17 and under) is when AGI is between:
- Single $200,000 – $240,000;
- Head of Household $200,000 – $240,000;
- Married Filing Joint $400,000 – $440,000.
The child’s age for 2021 is their age as of Dec. 31, 2021.
Question: How do I opt-out?
Perhaps the taxpayer would qualify for the tax credit based on their 2020 tax return, but they know their income would be higher in 2021 and push them over the threshold. They may want to opt-out rather than owe money when their tax returns are due.
Some people also say they like the idea of getting a larger tax return in the spring.
It is not too late to opt out for the August through December payments if you've already received the July 15 payment.
"Probably at this point, I would recommend cashing that (if you received a July payment)," said Tucker. "And keeping in mind that if you're opting out because you won't qualify based on your income, you may owe that back when you file your tax return."
Visit this portal on the IRS website and update that information so that you don't receive future payments.
Question: What happens if I am not together or separated from my child's other parent, and it's his/her year to claim our child on taxes?
Only one parent can claim the credit for a given child. If you incorrectly claim a child this year, you may have to repay that money. Many parents who share custody also share years they claim their child. For example, one parent may take on the even years, while another takes on the odd years. Tucker says she thinks you should opt-out if it's not your year and also let the IRS know.
"I think that would be something that you would have to go in and do manually if you did not claim the child on your 2020 tax return," said Tucker. "The IRS might know that you don't claim that child every year, but they don't necessarily track the pattern. I would think you can make that update on the IRS website."
Question: I got a letter from the IRS saying the money was direct deposited, but it's not there. What do I do now?
The credit rollout has not been smooth, but you should know that you could get a direct deposit or a check in the mail. You may want to update or verify your banking information with the IRS through the portal. You can also do a payment trace. The IRS will let you update your banking information, but you'll have to wait to update things like address, income, or the number of dependents. The portal doesn't have the capability to update those items at this time.
Listen to "Your Money with Michelle Li" podcast to hear more information about the Child Tax Credit.