How Does The Child Tax Credit Work?
As part of the American Rescue Plan stimulus relief bill, the Biden administration has extended the child tax credit for the year 2021.
Ordinarily, eligible tax paying families are able to receive up to $2,000 towards a tax credit on their early tax returns. This benefit is usually only available to those who pay taxes, meaning non-filers and those who do not make enough income to pay federal taxes cannot access the money.
This year however, the credit is fully refundable, meaning it is available to ALL families who are eligible. It is estimated that 92% of American families with children will be eligible to receive some part of the credit this year. The full amount benefit will be $3,600 for each child under the age of 6. The income thresholds for the full benefit is $75,000 for single filers and $150,000 for joint filing.
Regardless of how little income you make, even if you make none at all, you are eligible to receive the money this year. This extension of the child tax credit is currently slated to only be distributed for the year 2021.
There are a couple of different ways you can receive the money. For most, they will start to receive monthly payments of $300 starting July 15 and lasting through December. This amounts to the first half — $1,800 — of the total $3,600 benefit. The other half can be claimed during next year’s tax filing.
Another option is to opt out entirely of the monthly installments and receive it all in one lump sum next year after you do your taxes. Keep in mind with this method, however, that you will have to wait until after you file taxes and receive your return in order to receive the money.
Lastly, you can choose to opt out entirely to not have the responsibility of the income thresholds. Should you believe that your income will change/increase in the next year, and could possibly exceed the income thresholds, then it might be a good idea to opt out of the tax credit entirely.
The child tax credit is calculated based on your 2020 taxes and income. Therefore, if your income increases and you do not notify the IRS, you might have to pay the child tax credit back if you received any part of it this year based on now irrelevant income information.
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Last updated: July 12, 2021