Here are some answers to common questions Iowans might have about the new, expanded child tax credit, payments for which began hitting bank accounts last week.
What is the child tax credit?
A federal tax benefit to help families who are raising children.
How long has it been around?
The child tax credit has been around since 1997 and has undergone a number of modifications, most recently under President Joe Biden’s American Rescue Plan.
How does it benefit me?
You can receive up to $3,600 per child under 6, and up to $3,000 for children between age 6 and 17. Your family will receive monthly payments of $250 per child aged 6 to 17, or $300 per child aged 0 to 5, which started arriving July 15 and continues until Dec. 15. Half the credit will be sent to you in these prepayments, with the other half will get applied to your taxes next year.
What do I have to do to receive a payment?
If you’ve filed tax returns for 2019 or 2020, or if you signed up to receive a stimulus check from the Internal Revenue Service, you will get this tax relief automatically.
What changes did President Joe Biden make to it?
The American Rescue Plan increased the child tax credit from $2,000 per child to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under age six and raised the age limit from 16 to 17. All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent.
Instead of the full tax credit being applied at tax filing time, you will now get an advance on half of the money in the current tax calendar year.
What does it cost me?
Nothing. Receiving the payments now doesn’t mean you have to pay them back next year unless your income level changes drastically upward between last year and this tax year. If you typically owe a lot of money when you file your taxes each year, it could make sense to opt out of the monthly payments in order to have the child tax credit help bring down your tax burden specifically for your annual filing. But you’ll receive the benefit either way—even with the prepayments, half of the overall tax credit still gets applied on your tax filing.
Can I choose to not receive payment?
You can opt out of monthly payments for any reason and choose to receive any remaining child tax credit as a lump sum when you file your 2021 tax return. If you want to make that change, visit this website.
Does accepting the monthly payments increase my income level for taxes?
No. The tax credit’s effect is to lower your taxes—it does not count as taxable income, nor does it impact a family’s ability to qualify for low-income benefits. Accepting or declining the up-front monthly payments only changes when the tax benefit is applied to you—half in 2021 or all when you do your taxes next year.
What can I spend my child tax credit money on?
Whatever you want, although the intention of the child tax credit is to help families pay for expenses related to raising children.
by Ty Rushing