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Raising children is difficult enough, not to mention expensive. Parents have to juggle a lot of different responsibilities and competing interests to keep their kids happy and healthy. All of those demands cost money, which is where the child tax credit comes into play.
The Child Care Tax Credit recognizes that the cost of child care, food, educational materials, and clothing can be more than many parents can afford. Instead of just giving parents a break on their annual taxes, this credit applies that tax break to actual payments to families through the year.
Here’s what you need to know.
What Is The Child Tax Credit?
A lot of people have been hearing about the child tax credit without a ton of details about what it really is. If you’re a parent you might have already received your payments, but new parents and soon-to-be parents likely still have questions about this important new tax credit.
The Child Tax Credit is a provision of the American Rescue Plan that only applies to your taxes for the fiscal year 2021. That means that, unless extended, this tax credit is only available this year. However, since the total tax credit is between $3,000 and $3,600 per child it can still make a significant difference for the financial well-being of families with kids.
Qualifying families will receive a monthly payment starting July 15th for each qualifying child in their family. That means that the families of new babies born in 2021 should make sure to apply for the credit since their child won’t be listed on previous tax information.
The payments don’t cover the whole tax credit though, they’re just the first half of the credit. Families will be eligible to receive the second half of the Child Tax Credit when they file their 2021 taxes early next year.
Who Qualifies For The Child Tax Credit?
Right now families with children age 17 and younger are eligible to receive the Child Tax Credit for this year. There is also an income requirement, the tax credit only applies to families that are earning up to $150,000 for dual-income families, or $110,000 for single-income families. Above that income you may still qualify, but for a lowered level of benefit.
The tax credit also stacks. So if you have a 16-year-old, a 12-year-old, and a 5-year-old you’re eligible to receive benefits for all three children. If you have an 18-year-old, a 16-year-old, and 14 years old, your family is eligible for the tax credit for two of the three.
How Much Can You Expect To Get?
This tax credit is spread out across monthly payments as well as your final tax break at the end of the year. Since the law was new when it came out, most people started receiving payments in July, and there are not currently back payments for the first half of the year.
How much you receive depends on how many children you have, and their age. Currently, the parents of younger children receive slightly more than the parents of older children, to help cover the costs of diapers, formula, and child care that are less expensive as your child gets older.
Parents of children 5 years old and younger are receiving $300 a month, per child. Parents of children 6-17 years old receive $250 per month.
How Will I Receive My Payment?
If you’ve filed taxes in the last two years and listed your children as dependents on your taxes, you should get the tax credit automatically. For most people, the money is direct deposited into the same account your use for your taxes every month.
You may also be sent a physical check instead of a direct deposit if that’s how you usually receive your tax returns.
You will also receive the money automatically if you applied for a Covid relief stimulus at any point that had your children listed.
If you have not filed your taxes or requested a stimulus payment, and would like to receive the child tax credit you can fill out the non-filer tax credit request form from the IRS.
What If I Had My Baby This Year?
For parents of children born in 2021, it can be a little more confusing since their parental status isn’t in any of their previous tax paperwork. Fortunately, all children born in 2021 to families under the income limits qualify for the tax credit.
You’ll simply have to fill out the IRS Child Tax Credit Update portal to let the IRS know you have a new child and to start sending payments.