Millions of families, with children ages 17 and younger, will soon start receiving hundreds of dollars each month as part of a new, expanded tax credit in the American Rescue Plan.
To ensure their families receive the payment, parents need do one thing: file a 2020 tax return.
“Families must file a 2020 tax return, or the IRS will not have the information it needs to deliver this child tax credit,” said Elaine Maag, principal research associate at the Urban-Brookings Tax Policy Center.
The enhanced tax credit is part of the $1.9 trillion American Rescue Plan that President Joe Biden signed into law in March. It increases the annual benefit per child 17 and younger to $3,000 from $2,000 for 2021. It also gives an additional $600 benefit for children under the age of 6 for the 2021 tax year.
The IRS plans to start sending monthly payments – which will be about $250 for children older than 6 and $300 for those younger than 6 – in July, Commissioner Charles Rettig said Tuesday. Those payments will continue through December, and families will claim the second half of the total credit when they file their 2021 tax returns in 2022.
The full expanded benefit is available to all children 17 and under in families with 2020 adjusted gross income less than $75,000 for single parents and $150,000 for a married couple filing jointly.
The enhanced credit begins to phase out for taxpayers that have higher income and ends for individuals earning $95,000 and married couples filing jointly making $170,000.
Everyone should file a 2020 tax return
Right now, filing a tax return for 2020 is the only way to prove to the IRS that your child is eligible to receive the credit, meaning that all Americans with children should file a return regardless of income.
“We need the return information,” said Rettig in a March hearing with the House Ways and Means Committee, citing programs such as the earned income tax credit and child tax credit.
In addition to expanding the amount of money families will receive through the child tax credit, the American Rescue Plan also eliminates the minimum income necessary to be eligible for the CTC and makes it fully refundable.
It’s important to file a tax return for other reasons.
Families may be eligible for credits beyond the child tax credit or could be due a refund from the IRS. In addition, filing a return is the only way to receive a previous economic impact payment that you were eligible for and didn’t get.
More from Invest in You:
Prevent tax return anxiety by following these steps
New $3,000 child tax credit to start payments in July, IRS says
These unlucky taxpayers must still pay up by April 15
To be sure, things could change going forward. The IRS is working on implementing and launching a portal for the enhanced child tax credit that could potentially include a way to add new applicants, said Maag. She added, however, that currently no legislation has been put forward advocating for this.
That means Americans with children aged 17 and under should work to prepare their 2020 returns and file when they can. The IRS has a number of free programs to help Americans complete and file 2020 tax returns.
Most taxpayers have until May 17 to file their returns as the IRS has extended the filing season.
To see how much you could expect to receive, personal finance website Grow created a calculator that factors in your filing status, annual income and the number of dependents you have.
SIGN UP: Money 101 is an 8-week learning course to financial freedom, delivered weekly to your inbox.
CHECK OUT: How to make money with creative side hustles, from people who earn thousands on sites like Etsy and Twitch via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
