Millions of families will start to receive monthly payments from the IRS on Thursday, following the enactment of President Biden’s coronavirus relief law that included an expansion of the child tax credit.
The $1.9 trillion relief measure from March increases the credit amount for 2021 and directs the IRS to make periodic advance payments of the credit through the end of the year, so that families receive funds in installments rather than in a lump sum when they file their tax returns in 2022.
Democrats say the expanded tax credit will help to substantially reduce child poverty, and the monthly payments will help families cover important expenses as they occur. Many Democratic lawmakers want to pass legislation later this year to make the one-year expansion of the credit permanent.
Here’s what you need to know about the monthly child tax credit payments.
Monthly payments will be up to $300 per child
Biden’s coronavirus relief law increased the maximum amount of the child tax credit for 2021 from $2,000 for children under 17 to $3,600 for children under 6 and $3,000 for children ages 6 through 17. Married couples with income of up to $150,000 and single parents that use the head-of-household filing status with income of up to $112,500 are eligible for the full increased credit amounts.
The credit will be fully available to the lowest income households, and the IRS has been directed to set up a program on advanced payments.
The agency is starting monthly payments of the credit on Thursday, and will make payments on or near the 15th of each month through the end of the year. The monthly payments will be as much as $300 for children under 6 and $250 for older children.
Families will typically receive half their credit amount for 2021 in the form of the monthly payments this year, and they will receive the rest when they file their tax returns next year.
Some low-income families need to register for the monthly payments
The Biden administration has said that about 39 million households, covering almost 90 percent of children in the United States, will receive monthly payments automatically.
Families slated to receive automatic payments include those that filed 2019 or 2020 tax returns and families that used the IRS’s non-filer tool for stimulus payments last year. Most households receiving automatic payments will get them via direct deposit.
However, some non-filer households eligible for the expanded child tax credit will need to take action to get the monthly payments. That group includes households with very low incomes that typically are not required to file tax returns.
The IRS has created a web tool for non-filers to sign up for the payments. The Biden administration, Democratic lawmakers and nonprofits have made increasing awareness about the non-filer tool a top priority, holding a number of events around the country on the topic.
Some stakeholders have expressed concerns that the IRS web tool could be challenging for some non-filers to use, because it is not mobile-friendly and isn’t currently available in Spanish.
Recipients can use an IRS web tool to opt-out of monthly payments
In addition to the IRS web tool for non-filers, the agency has created a separate online portal that people can use to opt-out of the monthly payments and update their bank information.
The deadline to opt-out of the July payment has already passed. Taxpayers need to unenroll by Aug. 2 to opt out of the payments being issued in August and later this year. Taxpayers can also update their bank information effective for the August payments.
There are a number of reasons why people may want to receive their full credit amount when they file their 2021 tax returns, rather than receiving monthly payments this year.
Taxpayers who expect to be eligible for smaller credit amounts based on their 2021 income than their 2020 income, such as if their income increased to above the thresholds this year, may want to unenroll from the monthly payments to avoid having to pay back funds to the IRS.
Some taxpayers who are not seeing a significant increase in their income this year may also want to opt-out to prevent the monthly payments from resulting in smaller refunds or balances due to the IRS next year.
The IRS said it plans to update the tool in the future, so that people will be able to change their address, provide new information about their dependents and re-enroll in the monthly payments if they had previously opted out. The agency also expects to make the portal available in Spanish.
Some tax professionals have raised concerns that people will have trouble using the tool because they will struggle to use the procedures to verify their identities, particularly if they are not tech savvy.
Democrats want to extend the expanded credit, but could face challenges
Many congressional Democrats have expressed interest in making the expansion of the child tax credit permanent. The Biden administration has proposed making it permanent and extending other aspects of the credit expansion through 2025.
Senate Majority Leader Charles Schumer (D-N.Y.) said at a press conference in New York City this past week that he expects the expanded credit will be extended “for a very significant amount of time, and we’ll see if we can get the permanence that we are fighting for. “
The White House and Democratic lawmakers are hoping to extend the expansion of the credit as part of a wide-ranging social spending package that could advance in Congress through the budget-reconciliation process with just Democratic votes.
But there will be some obstacles to accomplishing that goal.
One is that Democrats will need to figure out if and how they want to pay for extending the credit. The Treasury Department has estimated that Biden’s proposed extension of the credit would cost more than $400 billion over a decade. Making the increased credit amounts permanent would be even more expensive.
The administration has proposed paying for its economic proposals through tax increases on the wealthy and corporations, but some Democratic lawmakers have raised concerns about aspects of the proposed tax hikes.
Additionally, while Democrats are planning to pursue legislation to extend the expanded child tax credit that would not need any Republican votes to pass Congress, GOP lawmakers are certain to criticize the plans.
Republicans have supported expanding the child tax credit in the past, including in their 2017 tax-cut law. But they are taking issue with the aspect of Democrats’ expansion that allows the lowest income families to receive the full credit amount, saying that doing so removes the link between the credit and working.