Your Questions About Child Tax Credit Payments Answered by a Tax Expert

In a significant move, the Biden-Harris Administration has launched the Child Tax Credit as part of The American Rescue Plan, offering unprecedented tax relief to working families during these challenging times. With many parents facing increased financial strain, understanding this tax credit is essential. We consulted with tax expert Jamie Larkins from Tax Insights, who provided valuable insights into the workings of this new program.

Am I Eligible for the Child Tax Credit?

To qualify for the full payment, your modified adjusted gross income (MAGI) must be $75,000 or less for individuals and $150,000 or less for couples filing jointly. If your MAGI exceeds these thresholds, the IRS will reduce your payment in two stages.

In the first stage, the child tax credit is gradually decreased from $3,600 for children aged 5 and under and $3,000 for children aged 6 to 17 by $50 for every $1,000 over the qualifying limit. However, your credit won’t drop below $2,000 regardless of your income. For those earning more than $200,000 as a single filer or $400,000 jointly, the credit is similarly reduced.

Additional criteria for monthly payments include:

Your child must be claimed as a dependent on your tax return.
The child must be a U.S. citizen, national, or resident alien and under 17.
The child should live with you for at least half the year and have a valid Social Security number.
You must provide more than half of their financial support.

How Much Can I Expect to Receive?

You can utilize this calculator to estimate your potential payment. The total amount will depend on your income and the number and ages of your qualifying children. Expect to receive up to $300 per child for those aged 5 and under and up to $250 for kids aged 6 to 17.

Do I Need to Apply for This Credit?

In most cases, the IRS will reference your most recently filed tax return (2019 or 2020) to determine your eligibility. If you do not typically file a return, you can register for monthly payments via their portal to establish your eligibility.

Will I Need to Repay This Credit Next Year?

Since this tax credit is an advance, if your payment exceeds what you qualify for on your 2021 tax return, you may need to repay some or all of it. For instance, if you claimed three eligible children in 2020 but only one in 2021, and you didn’t adjust your payment status, you could owe the IRS when filing your 2021 taxes.

However, the IRS has protections in place for certain taxpayers. If you lived in the U.S. for more than half the year and your MAGI is below the following, you will not have to repay:

$60,000 if married filing jointly or qualifying widow/widower
$50,000 if head of household
$40,000 if single or married filing separately

If your MAGI exceeds the following thresholds, repayment protection will not apply:

$120,000 if married filing jointly or qualifying widow/widower
$100,000 if head of household
$80,000 if single or married filing separately

How Will I Receive My Child Tax Credit Payment?

If the IRS has your banking information, payments will be issued via check or direct deposit. The IRS can access your bank details from the following sources:

Your latest tax return (2019 or 2020)
Information from the non-filer tool
Federal agencies like the Social Security Administration or Veterans Affairs

Are These Payments Taxed Monthly?

No need to worry about monthly taxes; these payments are not taxable.

This information is crucial for many American families navigating financial challenges. It’s a significant step forward, thanks to the Biden Administration, in providing support when it’s needed the most.

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Summary

The Child Tax Credit under the American Rescue Plan offers significant financial relief to families, with specific eligibility criteria based on income and dependent status. Payments can be received via direct deposit or check, and understanding repayment conditions is crucial for recipients.