These Child Tax Credit payments are coming to a bank account near you very soon.
The IRS is sending checks to parents for their children. Basically, the Child Tax Credit is increasing for 2021, and you’ll get half in monthly installments over the next six months, and the other half in a lump sum on next year’s taxes.
Who is Getting a Check?
For kids up to age five, you’ll get $3,600 per child. For kids ages six through 17, you’ll get $3,000 per child (total). There is still money for those over 17. If you have an 18-year-old, the IRS will make a one-time payment of $500 per 18-year-old child; the same applies to children up to age 24 if they are full-time college students.
This credit is based on your AGI (Adjusted Gross Income) from your 2020 filing. AGI is the sum of all your wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.
If you earned less than $75,000 for single people or $150,000 for married couples filing jointly, you qualify for the full amount. If you earned over that amount, the total tax credit you’ll receive decreases by $50 per child for every $1,000 over the amount.
You can calculate how much you’ll receive here.
This is a credit, not a loan, so you won’t be paying anything back. This is cash delivered straight to your bank account if you have direct deposit set up, and straight to your mailbox if you receive a paper check.
The monthly payments will start automatically on July 15, 2021. If you want to receive this as monthly payments, you don’t have to do anything. If you don’t want it in monthly payments, keep reading.
You can read more about the Advance Child Tax Credit on the IRS website.
How to Opt Out of Monthly Payments
The IRS is set up to help you “easily” opt out of these payments if you’d prefer to receive the total lump sum on next year’s taxes. I still use the term “easily” lightly, because after all… it’s the IRS.
You can access the portal here to opt out and/or manage your monthly payments.
For the majority of people, it doesn’t make sense to opt out. Many people do use their tax refund as a form of forced savings (interest-free, of course). If that’s what it takes to get you to save then so be it, but if you plan on investing any of that money, you could be earning interest on it sooner by receiving it sooner.
Either way, before the money gets here, you need to decide which way you’re going to go (monthly payments or lump sum) and you need to prioritize how you’re going to spend that money.
Fortunately, I already wrote an article with ways to prioritize these specific checks, so be sure to read that article next: How to Prioritize and Spend Your Advance Child Tax Credit Payments.