Some parents will see a boost to their bank account on Thursday, as the first installments of the Advance Child Tax Credit are deposited by the IRS.
WGLT talked to Rick Johnson, owner of Tax & Accounting Plus in Bloomington, about what families need to know.
What's different about the way this program is structured?
RJ: Since probably back in 1997, there's been a child tax credit of some sort, and it has kind of increased over the years. President Biden in March, as part of the American Rescue plan, decided to increase those amounts to help everybody because of COVID.
The Child Tax Credit was $2,000 per child under 18. That went up to $3,600 if the child was under 6, and it went up to $3,000 if the child was between 6 to 17. Generally, with the Child Tax Credit, you always apply for that when you file your taxes and you get that at that point in time. But now, with this Advance Child Tax Credit, they're going to take half of these increases that they're giving you, and they're going to start sending them out to you on a monthly basis.
So, if you filed a return in 2020—this is protected per child, keep in mind—if you had a child that was under 6, then you will get $3,600 for that child. What they'll do is they'll say, '$1,800 for that child. We're going to give you a six monthly installments. That's $300 a month.' If you had a child that was anywhere from 6 to 17, that's $3,000 per child, so half of that is going to be $1,500. So they're going to give you $250 a month.
How can parents claim it?
RJ: You don't have to do anything to get this money, because they're going to base this off your 2020 return. They're going to start making these deposits starting on July 15. And they're going to do this every month, approximately on the 15th of the month, for the next six months through December.
You have the option: you can either take that and do nothing, or you can actually opt out with the IRS, you can say, 'I don't want to get this money during the year, I'll just file for when I file my 2021 tax return.'
What are the qualifications families have to meet?
RJ: First of all, you have to have a child under 18. There are also income limitations related to this Advance Child Tax Credit. They have what they call phase-outs. Once you reach a certain amount of income, then the amount of credit that you can get starts going down until it's gone. If you're single, you can make up to $75,000 and get the full credit. If you're married and filing joint, you can make up to $150,000. And if you're head of household, you can make up to $112,500. For every $1,000 over that amount that you make, $50 comes off the credit until the credit's gone.
How can people opt out? What's the deadline?
RJ: To opt out for July, that's already gone. But the IRS has set it up so, on a monthly basis, you can opt out. For example, if you want to opt out for August, you have to make that opt-out decision by Aug. 2, and September is Aug. 30. Anytime throughout this this process, you can opt out and stop it.
The IRS has a portal that is set up on its website, where you can go and opt out. You can also—for example, maybe you weren't required to file a 2020 return. You can put your information in and ask them to go ahead and send you these funds because you do have children, but you didn't file your tax return because you were not obligated to because of income requirements.
The IRS is going to direct deposit. And they really suggest that everybody that's getting these funds have their this Advance Child Tax Credit deposited into their checking or their savings. Maybe you owed or maybe you just chose not to have your refund direct deposited. You can go into that portal and enter your bank information so that you can begin receiving direct deposits.
How long will these changes be in place?
RJ: Right now, this is set up to go through 2021. This additional Advance Child Tax Credit will end at the end of December. Whether they extend it or not, we're going to have to wait and see. Keep in mind, this is for the special Advance Child Tax Credit. You'll still receive your regular child tax credit of $2,000 per child. That one still exists and that will continue on, at least through 2025.
How can people responsibly spend this extra money?
RJ: The whole idea is getting the money in people's hands so they will spend it. By giving it to you now on a monthly basis, you'll be able to spend it and get it out into the economy to help spur the the economy forward. That's from (the government's) perspective—they don't want you to save it, because that's not going to do anything.
But financially, people are going to be behind (on) their ... bills. Maybe it's their electric, maybe it's their different utilities, maybe it's their rent. From that perspective, those are things that they should be getting taken care of.
With the stimulus payments, we saw ... people just kind of out of splurged a little bit. They went out and took a trip, just to get out. That's not such a bad idea, either.
