This Year's Child Tax Credit Could Mean Extra Money In Your Pocket By Summer
PITTSBURGH (KDKA) -- In addition to the $1,400 stimulus check, there's another provision in President Joe Biden's American Rescue Plan that could pump more money into your bank account.
It's the largest-ever refundable child tax credit, and you may start to get some of this money as early as July.
With tax credits, you normally wait until next year to claim them on your tax return, but this one is different. Even before you file your taxes next year, you may start to get cash for a special child tax credit this year.
It's a one-time deal and a bit complicated.
"The nice thing about this is it is now a fully refundable credit," Duquesne University professor Bryan Menk told KDKA money editor Jon Delano on Wednesday. "Most credits will just reduce your tax liability so you don't have to pay as much to the government. But you don't actually get money put back into your pocket. In this situation, you will get money put back."
How much money will you get?
Under the new law, the tax credit has grown to $3,600 for every child 5 years of age and under and $3,000 for every child from 6 to 17 years old.
One-half of that money could be sent to you in advance in a monthly check.
"Starting in July – at least this is what the IRS is projecting right now – they will start making monthly payments to you," says Menk, who teaches tax and accounting. "If you're getting $3,600 for the child that is under 6, you'll get $300 per month. If it's a child who's 12 years old, you'll get $250 per month.
"And the rest of that will be claimed as a credit on your tax return in 2022."
As long you have filed a tax return, you don't have to do anything more.
"When you filed these taxes, you would have claimed these children as dependents. The IRS is also going to check with the Social Security Administration to see the age of your dependents and who your dependents are," says Menk.
If you earned too little to file a federal tax return, take note: "You have to file a tax return for 2020 to get that monthly payment."
Single parents earning under $75,000 and married parents under $150,000 get this child tax credit. That's 90 percent of Pennsylvania families.
"In one fell swoop, it will cut the child poverty rate by about 40 percent," says Chuck Marr, director of federal tax policy for the Center on Budget & Policy Priorities in Washington, D.C.
One wrinkle. If your 2020 income makes you eligible, but your 2021 income goes up and puts you over the limits, those monthly cash payments will have to be returned when you file next year's taxes.
