First child tax credit payments go out this month to families in Washington, rest of nation
If you’re a parent, you very likely are going to get some free money appearing in your bank account because of the new child tax credit.
Don DeSantis of Clifton Larson Allen says there are a lot Americans who will be getting this credit.
“It’s estimated that as many as 35 million people could qualify, taxpayers, with up to 60 million kids in the United States,” DeSantis said. “So it’s quite a few people.”
There are income limits, however.
“I’ll tell you where the phase outs start. For single people, it’s $75,000. For married filing joint, it’s $150,000. So $150,000 of income is a fairly substantial amount, and that’s where it starts phasing out. You get up to probably close to say $200,000 and it’s gone,” he explained.
“But even as that this enhanced credit might phase out, you’re still going to qualify for the old child tax credit, which for married people can go as high as $400,000 in income,” he added.
Under the new child tax credit, the maximum per child depends on the child’s age.
“For kids 6 to 17, it’s going to be $3,000 per child. And for kids under 6, it’s going to be $3,600 per child. So for example, let’s say you had a family that made under those limits and they had three kids — one was age 6, one was aged 10, one was age 12 — they would qualify for a credit for 2021 of $9,000,” DeSantis said.
“That example family will get $4,500 during the year,” he said. “They’ll get the other $4,500 when they file their taxes.”
A tricky part of this tax is that unlike the stimulus checks given out last year, there is a chance you’d owe some of this credit back if your income were to change over the course of the year. For the stimulus checks, the IRS was looking at prior year returns in many cases, and some people got those checks who wouldn’t have qualified based on their current income, but were able to keep the money.
“This is a different program. Now if you receive too much, you’re going to have to pay it back,” DeSantis said.
If you’re worried about a big tax bill at the end of the year, you can opt out of the program.
“What the IRS has done is if you go to the IRS website, which is irs.gov, they have a child tax credit portal there. And first, it answers a lot of questions. So if you just have questions on how the program works, you can find that out at the IRS website,” DeSantis said. “It’s also going to tell you, apparently, whether you’re enrolled. Because the IRS is looking right now at 2020 returns, you can unenroll from the program if you choose.”
“And you can change your banking info, because remember they’re sending you money so they have to have your banking numbers,” he added.
DeSantis hasn’t tried it himself, but he says there’s also a tax calculator on the IRS website.
“So you can enter in your facts, like this is how much money I think I’m going to earn in 2021, I have three kids, these are their ages. You can actually run a simulation to show how much you’re going to qualify for and how much you’re going to receive each month,” he said.
“This is so new — everybody’s kind of learning because the first checks go out this month, July of 2021,” he continued. “What is so different about this child tax credit versus what’s called the historical child tax credit from prior years is you don’t wait until your return, they’re going to send you money every month.”
The Biden administration has also already proposed making this last through at least 2025, but has expressed that it would like to make it permanent.
“Biden has proposed this at least through 2025, but he would like to make it permanent because they feel that people at the lower end of the income spectrum, let’s say, it was a little hard each year to wait till they filed their return and they’d get a credit once a year,” DeSantis noted. “This is going to give them money throughout the year and it’s going to help reduce child poverty.”
The estimated cost of this program, DeSantis says, is $100 billion.
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