Child Tax Credit: October Payments Hitting Parents' Bank Accounts
(CBS Detroit) -- The Internal Revenue Service (IRS) sent out the fourth round advance Child Tax Credit payments on October 15. The actual time the check arrives depends on the payment method and individual banks. Many parents with direct deposit set up through the IRS had already received their money Friday morning. That amounted to roughly 60 million children overall the last time around. The remainder of families receiving their credits via direct deposit should have their money by the end of the day. Mailed checks could take up to a week, given various issues with the U.S. postal system. Future payments will continue to happen monthly through the end of the year, thanks to the American Rescue Plan passed back in March. Democratic lawmakers are looking to extend that end date to at least 2025.
Families can use the Child Tax Credit money however they like. That means the extra $250 or $300 per child can be put toward essentials like food or rent. U.S. Census numbers collected in its Household Pulse Survey showed a sharp drop in food insufficiency and less difficulty with household expenses soon after the first payment arrived back in July. Almost half of recipients spent at least some of the money on food, and almost a fifth of parents with young children spent money on childcare. The credit may also be used to buy a new computer, which was a necessity during remote learning. Other households may apply the money toward piano lessons, car repairs, or even diapers. Regardless, knowing that the extra income will be there every month allows for a measure of security and flexibility in a world that's full of surprises.
How Much Should Your Check Be?
The IRS is paying $3,600 total per child to parents of children up to five years of age. That drops to $3,000 for each child ages six through 17. Half of the total is being paid as six monthly payments and half as a 2021 tax credit. So parents of a child under six receive $300 per month, and parents of a child six or over receive $250 per month. The IRS has made a one-time payment of $500 for a dependent age 18 or full-time college student up through age 24.
The updated Child Tax Credit is based on parents' modified adjusted gross income (AGI), as reflected on their 2020 tax filing. (AGI is the sum of one's wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.) The amount phases out at a rate of $50 for every $1,000 of annual income beyond $75,000 for an individual and beyond $150,000 for a married couple. The benefit is fully refundable, meaning it does not depend on the recipient's current tax burden. Qualifying families receive the full amount, regardless of what they owe in taxes. There is no limit to the number of dependents that can be claimed.
For example, suppose a married couple has a three-year-old child and a seven-year-old child and showed an annual joint income of $120,000 on their 2020 taxes. The IRS is sending them $550 per month. That's $300 per month ($3,600 / 12) for the younger child and $250 per month ($3,000 / 12) for the older child. Those payments will last through December. The couple would then receive the $3,300 balance -- $1,800 ($300 X 6) for the younger child and $1,500 ($250 X 6) for the older child -- as part of their 2021 tax refund.
Parents of a child who ages out of an age bracket are paid the lesser amount. That means if a five-year-old turns six in 2021, the parents will receive a total credit of $3,000 for the year ($250 per month), not $3,600 ($300 per month). Likewise, if a 17-year-old turns 18 in 2021, the parents are receiving $500, not $3,000.
An income increase in 2021 to an amount above the $75,000 ($150,000) threshold could lower a household's Child Tax Credit. The IRS will soon allow claimants to adjust their income and custodial information online, thus lowering their payments. Failure to do so could increase one's tax bill or reduce one's tax refund once 2021 taxes are filed.
Eligibility requires that the dependent be a part of the household for at least half of the year and be at least half supported by the taxpayer. A taxpayer who makes above $95,000 ($170,000) -- where the Credit phases out entirely -- will not be eligible for the expanded credit. But they can still claim the existing $2,000 credit per child.
How Do You Make Changes For Future Payments?
The IRS has three different tools to help recipients and potential recipients update their information on file, register and check eligibility.
Child Tax Credit Update Portal
The Child Tax Credit Update Portal allows users to make sure they are registered to receive advance payments. It also lets recipients unenroll from advance payments in favor of a one-time credit when filing their 2021 taxes. The deadline for the next payment was October 4. (Subsequent opt-out deadlines for future payments will occur three days before the first Thursday of the month from which a person is opting out.)
Here are the remaining opt-out deadlines:
- Payment Date: November 15 / Opt-Out Deadline: November 1
- Payment Date: December 15 / Opt-Out Deadline: November 29
The tool also allows users to add or modify bank account information for direct deposit, view their payment history, and update their mailing address. Other features coming to the portal include changing one's income and dependents. To access this portal, users need an IRS username or an ID.me account. ID.me is a sign-in service used by various government agencies, including the IRS, Social Security Administration and Treasury Department, to authenticate users. Users need valid photo identification to create an account.
Child Tax Credit Non-Filer Sign-Up Tool
The Child Tax Credit Non-Filer Sign-Up Tool is to help parents of children born before 2021 who don't typically file taxes but qualify for advance Child Tax Credit payments. That means parents who have not filed their 2020 taxes, are not required to file, and don't plan to file. (Parents who claimed their dependents on their 2019 tax return should not use this tool.)
Users enter their personal information, including their name, mailing address, email address, date of birth, relevant social security numbers, bank account information, and identity protection PIN. The IRS uses the information to check eligibility and, once confirmed, will begin making payments. The IRS and experts advise using the tool on a desktop or laptop computer rather than a mobile device.
Child Tax Credit Eligibility Assistant
The Child Tax Credit Eligibility Assistant lets parents check if they are eligible to receive advance Child Tax Credit payments. Users will need a copy of their 2020 tax return or, barring that, their 2019 tax return. It's also fine to estimate income and expenses from the appropriate tax year, though the result may not be accurate. The assistant asks multiple questions to determine eligibility, but does not ask for sensitive information. No entries are recorded.
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