The IRS is sending out letters to more than 36 million families about getting monthly Child Tax Credit payments (as part of the American Rescue Plan) starting in July and lasting through December.
The IRS is sending letters to families who may be eligible for the tax credit based on information provided in either your 2019 or 2020 federal income tax return. Later, a second letter will be sent to eligible families letting them know the estimated amount for each monthly payment.
When will payments start?
Instead of waiting until next year to receive the tax credit, eligible families will start receiving monthly payments as of July 15, 2021. The advance payments will be issued by the IRS on the 15th of the month, from July through December.
Most eligible families will receive the tax credit payments via direct deposit. If direct deposit is not set up, those families would receive payments either by paper check or debit card.
Who is eligible and how much are the payments?
The credit will begin to phase out for individuals earning more than $75,000 a year, $112,500 for heads of household or $150,000 for those married and filing jointly.
If you haven’t filed your 2020 tax return yet, the IRS is encouraging you to do so in order to receive the month tax credit payments. Families eligible for the credit will receive up to $300 per month for each qualifying child ages 5 and younger and up to $250 per month for each qualifying child ages 6-17.
Take note—these advance payments could reduce your tax refund.
If you like a big tax refund at once, you'll need to take action to avoid the monthly payments. Receiving a monthly payment will cut into how much you might receive as a lump sum tax refund when you file your 2021 federal income tax return next year.
What to look for in the future
In the future, the IRS plans to create a tool to give families the option to opt out of monthly tax credit payments. If this option is chosen, you’d get the full amount of the credit when you file your 2021 tax return next year.
The IRS also plans to create a Child Tax Credit Update Portal where you can notify the IRS of income changes, filing status, or number of qualifying children, as well as update your direct deposit information. These tools are not yet available, but you can visit IRS.gov/childtaxcredit2021 for updates.
*Consult a tax advisor for more information.