Eligible families will receive up to $300 per month for each qualifying child ages 5 and younger. The monthly payout is up to $250 per month for each qualifying child ages 6 to 17. Your amount will be based on your income.
The American Rescue Plan, signed by the president March 11, increased the amount of the credit for many people and included children age 17, instead of stopping at 16.
The plan also requires the IRS to advance up to half of the expected credit in equal monthly installments from July through December. The rest of the money is available when tax returns are filed next year.
Eligible parents will receive up to $3,600 total for each child ages 5 and younger and up to $3,000 for each child ages 6 through 17. Until now, the credit was worth up to only $2,000 per child.
The IRS said it would calculate the payment amount based on the 2020 tax return, if that return has been filed and processed. If not, the IRS will instead determine the advance monthly payment amount using the 2019 return.
Those who qualify can use that money now to cover bills or other expenses. One goal is to help lift many children out of poverty.
But everyone isn't likely to be happy next year when they file their income taxes. The reason? You're receiving money up front that you might have received in a lump sum when you filed your tax return.
"This could result in a smaller tax refund when people go to file next spring," said Pickering, chief tax officer at H&R Block.
Some families who experience life changes even could be issued more money in the upcoming advance payments than they'll actually end up qualifying for when they complete their 2021 tax returns next year.
Some examples: Say your income increases and you're no longer eligible for some or all of the child tax credit.