Child Tax Credit Payments...Starting in July? What to Know.

Parents may be surprised next month when they see a significant amount of money hit their checking accounts...and each and every month until the end of the year!

Covid-19 relief legislation passed in March included an expansion and advance payment of child tax credits to eligible families. The child tax credit, typically $2,000 per child under age 17, is now $3,000 per child age 6 to 17, and $3,600 per child under age 6. Single parents earning less than $75,000 or married couples earning less than $150,000 are eligible (the tax credit starts phasing out above those amounts).

That means between $250 to $300 per month, per child. I know some families with a good number of kids still at home. That’s a big chunk of change! The IRS plans to start payments on July 15th.

While we all love extra cash rolling into our checking accounts, it’s important to note that this is an advance of at least some of the tax credit you may typically receive when you file your taxes after year end.

Here’s an example. A married couple earning $80,000 has four kids at home, all between the ages of 10 to 17. This family typically expects to receive a child tax credit of $8,000 ($2,000 per child) when they file their taxes each year, significantly reducing the taxes they owe, or even resulting in a refund.

With the new legislation, this family will start receiving advance payments in July of $1,000 per month (4 kids * $250). These payments will continue through the end of the year resulting in a $6,000 advance payment.

With the new law this family is entitled to $12,000 in total child tax credits, but when they file their taxes in 2022 their remaining tax credit will only be $6,000 ($12,000 minus the $6,000 advance already received). That’s $2,000 less than expected come tax time.

Of course, this family is still better off, but they need to be aware that part of their tax credit is coming into their checking account early, well before they file their taxes.

Want to receive your whole child tax credit later? Families can opt out of the advance payment program online through IRS.gov. The opt out tool is expected to be available July 1st.