Things to Know About the Child Tax Credit

As part of the American Rescue Plan—the $1.9 trillion expanded COVID-19 relief legislation passed by Congress back in March—families who are eligible for child tax credits have begun receiving payments and many of them are being directly deposited into bank accounts. But while most people receiving these payments are happy to have the extra cash, there are a few things you should know if you’re one of them.

Under the current law, anyone eligible for the child tax credit will receive what is essentially an advance on the first half of their 2021 child tax payments. The payments will be made in monthly allotments and will be doled out between July and December 2021.  In a normal year, child tax credit payments—which are based on a family’s modified adjusted gross income—are credited or paid when people file their income tax returns for the year. However, since the goal of the America Rescue Plan is to aid low-income families struggling to pay for basic needs during the pandemic, such as housing, food, utilities and clothing, the government is switching things up. While that is good news for most recipients, it could create complications for some.

Typically, the amount a family is eligible for in child tax credits is based on their federal income tax filings. But since these payments are being made before the 2021 calendar year is over, the Internal Revenue Service (IRS) is calculating them based on the size of a family’s household and their federal income tax filings for 2019 or 2020. That’s where things can get complicated.

If you’re among the millions of people whose income was negatively impacted by the coronavirus over the past year and a half, but have since seen your income situation improve, the amount the government sends you may be inaccurate. If left unchanged, this could reduce any tax refund you’re due come April 2021, or could potentially leave you with an unexpected tax bill. Under current guidelines for 2021, taxpayers filing as head of household with a modified adjusted gross income of $112,500 or less, or married filing jointly taxpayers with modified adjusted gross income of $150,000 or less, are eligible for child tax credits. The specific amount credited for each child directly correlates to a family’s income, with children under the age of six eligible for up to a maximum of $3,600, and those between the ages of six and 17 eligible for up to $3,000 each.

Anyone whose income was in this range in 2019 or 2020, but now exceeds it or has moved to the higher end of the spectrum, will need to repay a portion or all of any child tax credits they receive. To avoid overpayments, the IRS has created a portal where families can update their income and subsequent payments: the Child Tax Credit Update Portal. Under the current law, taxpayers filing as head of household with modified gross income of $50,000 or less, or taxpayers filing jointly with modified gross income of $60,000 or less, will not be asked to pay back any excess payments they receive.

With many people suddenly receiving payments of up to $300 per month into their bank accounts, the IRS is also warning people that fraud is on the rise, as criminals look to trick people out of their payments. The IRS recently issued a reminder that it will never contact people through email, text, voicemail or social media platforms, and that anyone who is contacted in any of these ways by someone claiming to be from the IRS should make sure not to give out any personal information, or even verify any information, such as account numbers. The IRS is making payments through bank information it already has on file, so there’s no reason anyone should be contacting you looking for this sort of information. If your account information has changed and you’re concerned that it may delay your payments, you can update your bank information on the portal link cited above.

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