Advance Child Tax Credit Payments: Eligibility, Payment Schedule

ACROSS AMERICA — Starting this month, some U.S. families will receive the first of several advance child tax credit payments, a form of federal relief intended to help Americans offset the financial burdens caused by the coronavirus pandemic.

The new child tax credit, created as part of President Joe Biden’s American Rescue Plan, expands on the existing credit of $2,000. It will provide families up to $3,000 for each child age 6 to 17 and $3,600 for each child under age 6.

Instead of receiving the credit when filing taxes, families will receive half of the credit in the form of advance monthly payments. An estimated 39 million households will receive the payment this month, benefiting nearly 90 percent of all U.S. children, according to U.S. News & World Report.

Some are lauding the advance payments as a game-changer for low-income families and children, many of whom faced intensified racial and economic inequality during the pandemic.

"The child tax credit has, until now, provided less help for the families at the lowest incomes who arguably would benefit the most," Indivar Dutta-Gupta, co-executive director at the Georgetown Center on Poverty and Inequality, told U.S. News.

"The expansion under the American Rescue Plan is extraordinarily well suited to stabilize families who are faring the worst right now, as well as those who were faring the worst before the pandemic and likely will be again without broader structural changes,"Dutta-Gupta said.

Is your family eligible to receive the advance payments? If so, when will the first payment arrive? Here are five things to know about the advance child tax credit payments and what you can expect:

Am I Eligible?

A family is eligible for the advance payments if they have a “qualifying child” — defined as someone who does not turn 18 before Jan. 1, 2022.

The child must also be the taxpayer’s son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of those listed (for example, a grandchild, niece or nephew,) according to the Internal Revenue Service’s website.

The amount a family receives is based on income.

To qualify for the payments, families must earn an adjusted gross income that does not exceed $150,000 if married and filing jointly or $75,000 for individuals. Families earning a combined adjusted gross income of more than $400,000 will see their credits reduce gradually to less than $2,000 per child.

When Will Payments Be Sent?

The IRS will begin disbursing advance child tax credit payments July 15. After that, payments will be disbursed on a monthly basis through December 2021.

What Do I Need To Do?

Generally, nothing.

The IRS will use the tax and direct deposit information on your 2019 or 2020 tax return. In some cases, the agency will also use information entered into the non-filer tool on IRS.gov, the same tool used to register for coronavirus economic impact payments. This will determine if you qualify and automatically enroll you to receive advance payments. You do not need to take any additional action.

Is There A Catch?

Possibly. Qualification is based on a family's 2021 tax return, yet advance payments are being delivered based on 2020 or 2019 tax information — some of which may no longer reflect a family's situation. If you receive advance payments but no longer have a qualifying child in 2021, you may be required to pay back the money.

Cari Weston, director of tax practice and ethics for the American Institute of CPAs, told U.S. News that Americans may not understand the difference between economic impact payments and advance child tax credit payments.

"The government issued stimulus checks. They weren't taxable, they weren't advanced payments of their refund, they were just extra money," Weston said. "People who don't fully understand this new credit will think this is just like that. They may not realize that what they're getting is a prepayment of what they would get anyway when they file the return."

If you think you might not qualify this year, you can opt out of the advance payments. This could be the best choice if your income has changed or if you no longer have a qualifying child.

While the deadline to opt out of the July payment has passed, families can still forgo future payments. The deadline to opt out of the August payment is Aug. 2.

To opt out, individuals must make this request through the IRS Child Tax Credit Update Portal.

On the other hand, the advance payments are not considered income and will not be reported as income on your 2021 tax return, according to the IRS.

Is The Tax Credit Permanent?

As of right now, no; however, the Biden administration has proposed extending the credit into future years.

Experts agree. In a recent report highlighting the overall well-being of children in all U.S. states, the Annie E. Casey Foundation argued for making the extended tax credit permanent.

“The COVID-19 crisis has brought many families to the breaking point, especially parents and caregivers who have lost jobs and income,” Lisa Hamilton, president and CEO of the Annie E. Casey Foundation, said in a release. “Making the expanded child tax credit permanent will continue providing critical financial support for families who are struggling to make ends meet and help reduce long-standing disparities that affect millions of families of color.”