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Revised Child Tax Credit: Everything You Need to Know

Update: If you received monthly child tax credit advance payments this year, be on the lookout for Letter 6419 the IRS started mailing out in December. The form lists the total amount of advance payments you received, and you’ll need it to file your 2021 taxes and receive the other half of your child tax credit.

Taxes shouldn’t be this complicated. Connect with a RamseyTrusted tax advisor.

What Is the Child Tax Credit?
What Is the New Child Tax Credit Amount?
Who Is Eligible for the New Child Tax Credit?
Should I Take the New Child Tax Credit in Monthly Payments or Wait for the Lump Sum?
How to Opt Out of Monthly Child Tax Credit 
What if I Got a Check but Wasn’t Supposed To? 
What if I Was Underpaid or Overpaid?
What if I Haven’t Gotten My Payment Yet?
When Will the Next Check Be Sent Out?
If I Take the Advance Payment, How Does This Affect Next Year’s Taxes?

All right, you guys, if you have kids like me, listen up: Some of you are going to get cash in your hands every month for the rest of 2021 thanks to the increased Child Tax Credit. I know what you’re thinking: Isn’t the Child Tax Credit just given out at tax time? And the answer is—yep, normally that’s how it works. But not this year. Which makes sense, because there’s been a lot of extra money from the government lately.

First, there was stimulus number one, then number two, and then number three—and now the first of the Child Tax Credit payments just went out, and they’ll keep coming for the rest of the year.

A lot of you still have questions about it, so let’s talk about what the new beefed-up Child Tax Credit means for you and your money.

What Is the Child Tax Credit?

The Child Tax Credit is a type of tax credit given by the government based on how many dependents you have. And it took a big leap this year thanks to the American Rescue Plan. During a “normal” year, you can claim your kids and get a maximum tax credit of $2,000 for each qualifying child under age 17.1 That means if you owe income taxes, then the Child Tax Credit lowers your tax bill. And if it lowers it so much that now Uncle Sam owes you money, then you can get a refund of up to $1,400 per kid—pretty nice.2

Usually, parents have to wait until after they file their taxes for their refund to come rolling in. But that’s all changing for your 2021 taxes (that you’ll file in 2022). With the tax credit, you’re automatically enrolled to get half of your refund paid to you up front through monthly payments starting in July 2021 and wrapping up by December 2021. The other half of your refund would be paid out to you after you officially file your 2021 taxes (like normal) next year.

Basically, the thought process here is that families in need could get their hands on that refund money earlier to help them take care of their immediate needs now. The State of Personal Finance study from Ramsey Solutions found that 35% of parents say this money will go toward paying their bills.

Now, this thing isn’t a stimulus check, but it’s almost like it in a way—although this money is coming from the tax return money the government would already be giving to you at tax time. You’re just getting a slice of it sooner.

What Is the New Child Tax Credit Amount?

Here’s how the numbers break down: The American Rescue Plan bumps the Child Tax Credit up to $3,000 for children ages 6­–17 and $3,600 for children under age 6.3 Expecting a baby in 2021? First of all, congrats! And here’s some more good news for you—babies born in 2021 will qualify for the full $3,600. Have a college student? Parents can receive a one-time payment of $500 for each full-time college kid ages 18–24.4

So, for a family that has three children (like mine), here’s how it all breaks down:

Let’s say they have three kids that are ages 12, 7 and 4 and a household income of $72,000 a year. Their new Child Tax Credit would be $9,600.

But remember, instead of applying the full amount of the credit to income taxes they might owe or getting a refund after they file their taxes, parents can get the credit up front in monthly payments of $250 for each qualifying child ($300 for children under age 6).5 So that family of three in our example would get $800 a month from July through December. Wow!

Right now, this change would be only for 2021—but there’s talk in Congress and the White House to make it a permanent thing for the next five years under Biden’s American Families Plan. Yep, there are a lot of plans and acts to keep straight these days.

If the upped Child Tax Credit stuck around for the next five years, that would add $15,000–18,000 per child to the pockets of American families. And if that does happen, it’ll be more important than ever to make sure you’re being super intentional with that money. Now, you might be wondering how much the total price tag will be. A cool $1.6 trillion over the next 10 years, that’s what.6 Yikes.

Who Is Eligible for the New Child Tax Credit?

All right, qualifying for the new Child Tax Credit is based on several things: your income and the number of dependent children you have, plus their ages. The IRS will base all of this on your 2020 taxes (or 2019 if you didn’t file in 2020). If you need to make any changes to what they already have on file—like say, oh, you had a sweet new baby or a change of income in 2021—you can update your information through the Child Tax Credit Update Portal.

Now, there’s a limit to all of this. The Child Tax Credit will start to phase out for incomes over $150,000 for married taxpayers filing a joint return and qualifying widows or widowers, $112,500 for heads of household, and $75,000 for all other taxpayers.7

Let’s take a look at the Child Tax Credit Amounts for each age group one more time:

  • Ages 0–5: $3,600
  • Ages 6–17: $3,000
  • Ages 18–24 (and enrolled in college full time): $500

Your dependents will have to meet some basic conditions too. Obviously, there’s the whole age thing, but they also need to be dependents that you claim on your taxes. So if you share custody of your children, the increased Child Tax Credit will go to the spouse who is claiming the kids for the 2021 tax year. You can’t both claim the same child. And if you do, you might have to repay all or some of it back to the government the next year. That would be a huge bummer, so make sure you have everything figured out between you guys.

Should I Take the New Child Tax Credit in Monthly Payments or Wait for the Lump Sum?

The choice is yours here, you guys—you can either get half your payment July through December or you can wait until tax time rolls around and get it all in one lump sum.

If you’re feeling super confused about what to do, you’re not alone. Our State of Personal Finance research shows that of those who qualify for the Child Tax Credit, only 50% understand this new credit and what it means for their money. Half, you guys!

So, should you go for the monthly payments or just take one lump sum? A lot of it comes down to your family situation and whether there were any big income changes for you. Let’s take a look:

Pros of Taking the Monthly Child Tax Credit Payments

  • You can use the money now. If you’re having a hard time making ends meet, this is a great way to have extra cash flow to keep a roof over your head and feed your family.
  • You can keep more money in your own pocket during the year. And I’m a really big fan of that—but only if it doesn’t create a tax mess for you when it comes time to file your 2021 taxes.
  • You don’t have to jump through any extra hoops. If you’ve filed your taxes in 2019 or 2020 and want to get the advance child tax payments, you don’t have to do anything else or sign up for anything. You’re automatically enrolled and are all set.
  • You won’t have that lump sum. We know some people like to use their tax refund as a glorified savings account. They get a big refund and can’t wait to spend it on something they’ve wanted all year. But if you’ve been around here for a while, you’ve heard me tell you to set up your tax withholding so that you’re getting the most money you can in your paycheck. Which means you’ll be getting less money in your tax return each year (the goal is actually to get it as close to zero as possible—shocking, I know). But keeping more money in your actual paycheck means you can put your hard-earned dollars toward your goals now. It’s silly to let the government hang on to your money until tax time. It’s your money!

Cons of Taking the Monthly Child Tax Credit Payments

  • You’ll only get half of the money at tax time. If you take this advance payment of the Child Tax Credit now, just know that you’ll only see the other half after you file your taxes next year—and not the full amount. Remember, this is an up-front (and a little extra) payment of the regular amount you get.
  • You might have to pay some of it back. Now listen up: This is only if your income went up from 2020 to 2021. Let’s say you lost your job like so many Americans did in 2020, but then you got a new job in 2021. The tax credit is taking the info it has from your 2020 taxes, so your new income might push you over the limits and start to phase out (meaning you’ll get less money the higher income bracket you’re in).
  • Your payment will be sent to whoever claimed the kids on the 2020 tax returns. If you’re divorced or separated, these advance Child Tax Credit payments will go to the parent who had the kids listed on their taxes that year.
  • You might need that full amount of money at tax time. If you’re self-employed, making quarterly payments, or usually owe money to the IRS, you might want to opt out of monthly payments here. You’ll probably need that full amount to help bring down the amount you’ll pay at tax time.

How to Opt Out of Monthly Child Tax Credit 

If you don’t want these advance payments, you’ll have to go through a few steps to opt out. But it’s pretty simple really. The IRS set up a Child Tax Credit Update Portal for you to opt out and make any changes.   

Don’t worry—even though the first payment has already gone out, it’s not too late to opt out of the advance Child Tax Credit payment. Actually, you have the chance to opt out each month. Really! You just have to do it at least three days before the first Thursday of the month.8 So if you want to opt out in September, make sure to opt out by August 30, just to be safe.

Pro tip: If you’re married and filing jointly, then both you and your spouse need to opt out of the Child Tax Credit.

What if I Got a Check but Wasn’t Supposed To? 

Before you do anything, make sure you’re really not supposed to get a payment. If you’re sure, then you’ll need to return the money. And while you’re at it, you guys, head over to the IRS Portal to opt out of future payments. This is super important! You don’t want that payment to keeping dropping in your bank account when you’re not supposed to be getting it.

What if I Was Underpaid or Overpaid?

First, double-check how much money you should be getting and make sure the amount you think you’re supposed to get is right. You can do this on the IRS’s Child Tax Credit Eligibility Tool or by checking to see what amount is on the letter that the IRS sent to you at the beginning of July (before the first payment went out).

If it still looks a little weird to you guys, then head over to the IRS Portal and make sure they have your latest information.

What if I Haven’t Gotten My Payment Yet?

First, go ahead and check the IRS Portal to see what the status is of your payment. You can see if it’s been processed and is taking longer to get to you. While you’re there, look and see if your payment is coming by mail or direct deposit. If it’s coming by mail, that could be why it’s taking longer. If you’re expecting the payment to hit your bank account through direct deposit, double-check to make sure they have your correct banking info.

If things still don’t make sense, then you can submit something called a “payment trace” to the IRS (here’s the form you need). But make sure you give it at least five days after the date you were expecting to get the payment in your hands.

When Will the Next Check Be Sent Out?

From July until December, checks will pop up in your bank account on the 15th of each month. The payment schedule looks this this:

Payment Month Payment Date
July 2021 July 15
August 2021 August 15
September 2021 September 15
October 2021 October 15
Novemebr 2021 November 15
December 2021 December 15

If I Take the Advance Payment, How Does This Affect Next Year’s Taxes?

Good question, you guys. The biggest thing here is if your income increases in 2021, then you might get more money in the Child Tax Credit than you actually should get. Remember, guys, they’re basing the amount they think you should get on your 2020 tax return (or 2019 if you didn’t file in 2020). So, if you or your spouse got a raise at work and it bumped you over the qualifying amount, the IRS doesn’t know about it.

If you’re super confused by all of this, you’re not alone. The State of Personal Finance study found that 70% of parents who qualify for the Child Tax Credit money say they’re afraid to spend it because they don’t know how it will impact their taxes next year. That totally makes sense, guys—but don’t stay in the dark here. It’s so important to be in the know about these changes and how they affect you.

With all these tax changes, it’s a good idea to call in the folks who live and breathe this stuff. If you want your taxes done the right way, check in with a RamseyTrusted tax pro. They’re the experts who can walk you through this new Child Tax Credit change and how it impacts your money. And they’ll help you make the right call on whether you should take the advance payments or leave them alone. They can also show you the best way to plan out your taxes—you know, so you don’t end up with a huge scary bill or a crazy high refund. When it comes to your tax questions, leave it to the pros.

Rachel Cruze

About the author

Rachel Cruze

Rachel Cruze is a #1 New York Times bestselling author, financial expert, and host of The Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches 18 million weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simple and Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.

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