Monthly Payments of the 2021 Child Tax Credit Will Begin July 15

The American Rescue Plan offers American families a bigger and better child tax credit for 2021. For this year only, the credit amount for many families is increased from $2,000 per child to $3,000 per kid ($3,600 for children under age six), 17-year-olds qualify, and the credit is fully refundable.

One additional major element of the new child tax credit regime requires the IRS to make advance payments of the credit to qualifying families in 2021. The IRS will base eligibility for the credit and advance payments, and calculate the amount of the advance payment, based on previously filed tax returns. It will first look to your 2020 return, and if a 2020 return has not yet been filed, the IRS will look to your 2019 return. The IRS will also provide procedures for families who are not otherwise required to file tax returns.

The advance payments will account for half of a family’s 2021 child tax credit. The amount a family receives each month will vary based on the number of children in the family, the ages of the kids and the amount of the family’s adjusted gross income. Families who qualify for the full $3,000 or $3,600 credit could see checks of $250 or $300 per child for six months. Families with higher incomes who qualify for the $2,000 credit will get monthly payments of $167 per child for six months. (Calculate your monthly payment using Kiplinger’s 2021 Child Tax Credit Calculator.)

The IRS says that eligible families will begin receiving these monthly payments on July 15. Most payments will be directly deposited into bank accounts on the 15th day of the month from July through December. Families for which IRS does not have bank account information could receive paper checks or debit cards in the mail. If the 15th falls on a holiday or a weekend, payments will be made on the closest business day. Most eligible families do not have to do anything to get these payments.

The American Rescue Plan also requires the IRS to develop an online portal so that you can update your income,marital status and the number of qualifying children. So, if your circumstances change in 2021 from your last filed federal tax return, and you believe those changes could affect the amount of your child credit for 2021, you would be able to go onto that portal once it is up and running and update it for the correct information. Also, people who want to opt out of the advance payments and instead take the full child credit on their 2021 return could do so through that same online portal.

The IRS fully expects to launch the portal by July 1 as required under the law. In fact, administration officials say that the agency will create two separate portals: One for Americans who file tax returns each year and one for taxpayers who traditionally don’t file because their income is below the threshold required to file a return. Though these online portals will be launched by July 1, they are sure to need future enhancements and adjustments as taxpayers begin to enter data into the tool. In other words, don’t be surprised to see snags, at least in the beginning.

Challenges still lie ahead for the agency in implementing the program. The IRS is having to build a system to compute and recompute payments as people provide new information into the portals. The system must also be able to issue and track payments, as well as reconcile the payments with the taxpayer’s credit taken on the tax returns. Additionally, one major issue that the IRS will need to deal with is how to minimize the potential for fraud when it comes to refundable child tax credits. For example, the IRS estimates that in 2019 it improperly paid $7.2 billion in such refundable credits. IRS Commissioner Charles Rettig appears to agree that there is an element of risk for increased fraud in the new child tax credit program.

Source:-https://www.kiplinger.com/taxes/602603/monthly-payments-of-the-2021-child-tax-credit-will-begin-july-15

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