More federal money is headed families’ way this summer, but this latest infusion of cash isn’t quite like the worry-free stimulus checks Americans got in 2020 and 2021.
The $1.9 trillion coronavirus relief package passed by Congress in March increased the child tax credit this tax year to $3,600 for each child under 6 and $3,000 between the ages of 6 and 17. The previous amount was $2,000 per child under 17.
Starting July 15, families earning less than $150,000 can get payments of $300 per month for each child under 6 and up to $250 per month for children between the ages of 6 and 17.
That amounts to about half of what they’re entitled to in child tax credits.They can get the remaining half when filing 2021 tax returns. So, while taxpayers are getting more money overall in tax credits, the amount on the 2021 returns might be smaller than what they’re used to seeing in previous years’ returns.
The IRS gives concerned taxpayers an out.
“Eligible taxpayers who do not want to receive advance payment of the 2021 Child Tax Credit will have the opportunity to decline receiving advance payments,” according to the IRS.
Perry Barnett, partner in Gainesville accounting firm Rushton, said one other thorny point is “if you file your 2021 return and you’re above the income limit, then technically you didn’t qualify for the credit you got the advance payment for.”
“I haven’t read deep enough to see if you didn’t qualify (whether the IRS) will want that money back,” he added. Taxpayers “would just need to be careful if they’re around that ($150,000).”
Advance payments “will be estimated from information included in eligible taxpayers' 2020 tax returns or their 2019 returns if the 2020 returns are not filed and processed yet,” the IRS says.
The 2020 tax filing deadline was Monday, May 17, but still, the IRS “urges people with children to file their 2020 tax returns as soon as possible to make sure they're eligible.”
Politically, the child tax expansion isn’t geared to higher incomes but rather as a way to combat poverty.
President Joe Biden has proposed an extension of the increased child tax credit through 2025 as part of his $1.8 trillion families plan. Outside analysts have estimated that the payments could essentially halve child poverty.
“This tax cut sends a clear and powerful message to American workers, working families with children: Help is here,” Biden has said.
In some cases, Barnett said, people didn’t file a 2019 or 2020 return “because they didn’t need to. They didn’t have taxable income. They could have had four kids and there was no tax with all the deductions, so there was really no need to file.”
Those people “need to file a return with zero tax, so (the IRS has) got you in the system,” he added.
While the IRS will determine eligibility based on the 2019 and 2020 tax years, people will also be able to update their status through an online portal. The administration is also setting up another online portal for non-filers who might be eligible for the child tax credit.
The IRS says it will provide more information about advance payments soon.
The Associated Press contributed.