Your Questions About the Child Tax Credit Payments, Answered by a Tax Specialist

The recent initiative from the Biden-Harris Administration, specifically the Child Tax Credit, part of The American Rescue Plan, is set to provide unprecedented tax relief for working families during these challenging times. With parents facing unique challenges, understanding this tax credit is essential. We spoke with Jessica Lin, a tax expert from Financial Insights, to clarify some common inquiries regarding this program.

Am I Eligible for the Child Tax Credit?

To qualify for the full payment, your modified adjusted gross income (MAGI) must not exceed $75,000 for single filers or $150,000 for joint filers. If your MAGI surpasses these limits, payments will be adjusted in two stages. Initially, the child tax credit is reduced from $3600 for children aged 5 and under and $3000 for children aged 6 to 17, decreasing by $50 for every $1000 earned over the limit. However, the credit won’t drop below $2000. For individuals earning over $200,000 and married couples over $400,000, the same reduction applies.

Several criteria must be fulfilled to receive monthly payments:

Your child must be your dependent on your tax return.
Your child must be a US citizen, national, or resident alien, aged 17 or younger.
Your child must live with you for at least half of the year and possess a valid social security number.
You must provide at least half of their financial support.

What Will My Payment Amount Be?

You can estimate your potential payment using this calculator. The total amount is influenced by your income and the number of qualifying children. Families can expect up to $300 per month for children aged 5 and under, and up to $250 for children aged 6 to 17.

Is There an Application Process?

Usually, the IRS will utilize your most recently filed tax return from either 2019 or 2020. If you are not required to file a tax return, you can register for monthly tax credit payments here. This registration will help establish your eligibility.

Will I Have to Repay Any Amount on Next Year’s Taxes?

This tax credit is an advance, meaning if your payments exceed your eligibility for the 2021 tax return, you may need to repay some or all of it. For example, if you reported three qualifying children on your 2020 return but only one for 2021, and you didn’t adjust your payment status, you might owe money back to the IRS. Fortunately, the IRS has safeguards for some taxpayers. If you lived in the US for more than half the year and your MAGI is below certain thresholds, you won’t have to pay anything back:

$60,000 for married couples filing jointly or qualifying widow/widower
$50,000 for heads of household
$40,000 for single filers or married filing separately

If your MAGI exceeds these amounts, repayment protection is not available.

How Will My Child Tax Credit Payment Be Disbursed?

If the IRS has your banking details, payments will be issued via check or direct deposit. The IRS can obtain this information from your most recent tax return, any details you provided using the non-filer tool, or from federal agencies like the Social Security Administration.

Are These Monthly Payments Taxed?

No, you won’t have to worry about taxes on these monthly payments.

This information is crucial, especially as many American families navigate these times. The Child Tax Credit has the potential to significantly impact families positively.

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