Millions of families across the United States start receiving a little extra money from the government this summer as the new Child Tax Credit program went into effect. Payments are as high as $300 per child each month and began in July as part of the American Rescue Plan.
Not everyone is eligible for the tax credit, and there might also be reasons you would want to opt out. Here’s what you need to know to make an informed decision for your family:
Who Qualifies for the Child Tax Credit?
According to the IRS, an individual must meet the following criteria to qualify for a Child Tax Credit:
File a tax return in 2019 or 2020
Claim a child age 17 or younger as a dependent on that tax return
Have an adjusted gross income of less than $75,000 for single filers, $112,500 for those filing as head of household, and $150,000 for married couples filing a joint return.
The IRS defines a qualifying child as a son, daughter, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (for example, your grandchild, niece, or nephew). An adopted child, lawfully placed with you for legal adoption, is always treated as your own child.
Families who did not file a 2019 or 2020 tax return can still sign up for the tax credit through a non-filers portal on the IRS website.
“Even if parents haven’t already gotten the payment and they’re eligible for it, it’s not too late to sign up,” said Ashley Burnside, a policy analyst at the Center for Law and Social Policy, told CNBC. “They can use the IRS portal; that’s still an option.”
When Do Payments Go Out?
The first round of Child Tax Credit payments went out on July 15 via direct deposit or mailed check to those who did not have a bank account on file with the IRS.
The second payment was supposed to be delivered on August 13, but about 4 million payments were delayed because of a glitch at the IRS. Those families will now receive their money via check instead of direct deposit.
The IRS encourages people to check the Child Tax Update Portal to track the status of their payment and make changes to their payment delivery method if needed.
When Claiming the Child Tax Credit Isn’t Worth It
While the Child Tax Credit will be helpful to millions of families, it could end up costing money for some people depending on their tax situations.
For example, if your income went up in 2021 and you no longer qualify for the credit, the IRS will not know about that until you submit your 2021 tax return early next year. At that point, you’ll need to pay back the money that you received. If you do not want to do that, then opting out of the credit now is probably the best move.
A similar situation applies to parents whose children recently turned 18. Notify the IRS when the birthday happens so you can stop receiving payments instead of having to pay them back next spring.