Child tax credit begins Thursday — here’s what you need to know

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Treasury Begins Disbursement, of $600 Stimulus Payments . Treasury Secretary Steve Mnuchin tweeted that a "payment file" was delivered to the Federal Reserve on Tuesday. This means that some Americans may have already received their payments via direct deposit. These payments may begin to arrive in some accounts by direct deposit as early as tonight and will continue into next week, Steve Mnuchin, Treasury Secretary, via Twitter. Paper checks will begin to go out on Wednesday. . The $600 payment will be received by those who make less than $75,000 a year. Couples who make up to $150,000 annually will receive $1200. Parents of dependent children age 16 or younger will receive $600 for each child

Who’s eligible and when to expect the payments

The highly anticipated child tax credit payments will begin arriving for millions of Americans on Thursday, when the IRS issues checks or direct deposits to eligible families with children ages 17 or younger.

The payments will continue over the next six months through December.

More than 36 million U.S. families received letters in June informing them of their potential eligibility if their 2019 or 2020 federal income tax return had been filed.

What to expect

Eligible families have the potential to receive up to $3,600 per child in the form of $300 monthly installments on top of the $1,400 stimulus checks and unemployment benefits that have already been doled out to millions of Americans amid the coronavirus pandemic.

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The credit temporarily increases the existing child tax credit from a maximum $2,000 a year per child and will be paid out in advance of next year’s tax filing season.

For children ages 5 and under, the new credit is $3,600, or $300 a month; and for ages 6 to 17, the new credit is $3,000, or $250 a month.

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Hundreds of thousands of families nationwide will receive monthly payments of up to $300 for each dependent child, a measure intended to help families that took pandemic-related hits to their finances. Who qualifies? What do you do if you haven't received yours? Download, share or print our guide:

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Allow time for money to arrive

The IRS plans to issue direct deposits Thursday, but it still might take two to three business days for the payments to actually hit bank accounts.

“I wouldn’t expect the money on July 15 — that’s when the IRS will release the funds,” said Mark Steber, Jackson Hewitt’s chief tax information officer, according to CBS News. “There will be some lag time for the money to hit your bank account.”

The IRS will also mail paper checks to people who don’t have bank account information on file with the agency, and those payments could take one to two weeks to arrive.

Who’s eligible?

The income cutoff to receive the full payment is $75,000 for single taxpayers and $150,000 for joint filers, with a $50 reduction in the total payment for every $1,000 of income above those limits. Single taxpayers who earn $95,000 and joint filers who earn $170,000 per year do not qualify for the credit.

The new maximum credit is available to taxpayers with a modified adjusted gross income of:

$75,000 or less for singles,

$112,500 or less for heads of household, and

$150,000 or less for married couples filing a joint return and qualified widows and widowers.

- Internal Revenue Service

Is this money taxable?

In general, eligible taxpayers who receive the credit will not need to pay taxes on the money because it’s not considered income.

But some taxpayers may want to consider opting out if their income will rise above the cutoff threshold in 2021, or if they are divorcing a spouse who they know will claim a child as a dependent on their 2021 tax return. These specific scenarios would make a taxpayer ineligible to receive the credit, and the money would have to be paid back to the IRS during the 2021 tax filing season.

When to expect the payments

The payments will be sent by check or direct deposit on July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15, according to a statement from the Treasury Department.

And that’s not all.

Another payment would come in a lump sum with tax refunds in April 2022, according to reports.

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The plan was set up this way to get money in pockets sooner rather than making people wait to file next year’s taxes, but there’s also an option to unenroll from receiving advance payments and instead receive a lump sum credit when filing a 2021 return.

Still, some taxpayers are choosing to opt out of the monthly payments, preferring to claim the entire $3,600 or $3,000 tax credit on their 1040s, which is allowed.

Why now?

The payments are being provided as part of President Joe Biden’s groundbreaking $1.9 trillion pandemic relief law known as the American Rescue Plan Act. The credit is intended to help low- and moderate-income families navigate economic challenges that remain from the pandemic.

What else?

Most families do not need to take any action to get the payment.

The Treasury Department is encouraging eligible families to file their 2019 and 2020 tax returns as soon as possible to receive the advance payments. The fastest and easiest way to file a return is by using the Free File system on IRS.gov.

Typically, the IRS will calculate the payment amount based on the 2020 tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS will instead determine the payment amount using the 2019 return.

Later this year, individuals and families will also be able to go to IRS.gov and use a Child Tax Credit Update Portal to notify the IRS of changes in their income, filing status or number of qualifying children; update their direct deposit information; and make other changes to ensure they are receiving the right amount as quickly as possible.

Political wrangling

Democratic lawmakers have indicated they want to make the expanded and advance child tax credit a permanent change.

By including the child tax credit in the American Rescue plan, congressional Democrats sought to address income inequality and provide support to parents who were forced to cut down on work or give up jobs to take care of children after losing access to child care. According to some estimates, the credit will reduce the number of children living in poverty in the U.S. by more than half.

Republicans, however, have criticized the initiative as an expansion of welfare, saying it removes the incentive for parents to seek work.

The new child tax credit “is not targeted to pandemic relief, and risks the loss of billions of taxpayer dollars in fraudulent and improper payments,” Rep. Kevin Brady of Texas, the senior Republican on the House Ways and Means Committee, wrote in letters to Biden administration officials.

At a recent hearing, Sen. Charles Grassley, R-Iowa, said he was concerned the new tax benefit will remake the IRS’ role into a “social welfare-oriented” agency.