Things to know about the Advance Child Income Tax Credit
If you’re tired of hearing that 2020 was an “unprecedented” year, we hear you. We are too. There was a crazy pandemic that somehow mentally, physically, or financially impacted every household. Whether you agree or disagree with the way the government has handled supporting Americans during 2020 and into 2021, there is one initiative that parents will be able to leverage as they manage to (kind of) get back on our feet: the Advance Child Income Tax Credit.
What is the Advance Child Income Tax Credit?
The Advance Child Income Tax Credit is a part of the American Rescue Plan that was recently passed. It increases the credit parents can claim on their tax return for each of their children under the age of 17. The Child Income Tax Credit itself is not a new tax benefit to parents, but under the American Rescue Plan, starting in the summer of 2021, the credit has increased from $2,000 per child to up to $3,600 per child (we’ll explain a little more of the “up to” part later).
How does it work exactly?
Every year when you do the adult thing and you file your taxes (the day before it’s due) as a parent, you typically are able to claim a credit for having children. It lowers the amount of taxes you owe, thereby indirectly allowing you to keep more money in your pocket. Though the amount you claim doesn’t really cover the costs associated with having a child, that conversation is for another time.
With the Advance Child Income Tax Credit, instead of simply claiming the credit on your tax return (next year) the IRS will actually be sending you money right now to help you get back on your feet. That means more money in your pocket right now instead of later.
While a lump sum would be nice, the IRS will actually be sending you monthly payments for a year. (Maybe because they don’t want you to be investing it into crypto, AMC, or GameStop). If you are eligible for the advance payments, you should have received a letter in the mail stating that you are eligible for it. If you haven’t received it, the IRS has information on their website on how to sign up for these payments.
Just as an FYI, you won’t be receiving the full credit via monthly payments, just 50% of it. The other half will be claimed on your tax return as usual.
How much am I going to get?
That depends. (Don’t you hate that answer?)
*Monthly payment calculator for the Advance Child Income Tax Credit for parents with a child 5 and under
Remember how we said families are eligible to receive up to $3,600 per child? The advance payment and credit depends on the income you’ve reported on last year’s tax returns. The $3,600 starts to phase out (i.e. government speak for “decrease”) as your income increases.
Remember, you won’t be receiving the full amount up front in a lump sum payment like your stimulus check. Instead, you’ll be receiving monthly payments over the course of 6 months. The IRS says you’ll be receiving them starting July 15, 2021 through December 31, 2021.