Monthly Child Tax Credit Payments Set to Start July 15

Congress expanded the child tax credit in March, increasing the maximum credit from $2,000 per child to $3,000 for those age 6 to 17 and to $3,600 under age 6. The expanded part of the credit begins shrinking as income rises above $75,000 for individuals, $112,500 for heads of household and $150,000 for married couples. The $2,000 credit starts phasing out when income reaches $200,000 for individuals and $400,000 for married couples.

The credit isn’t just larger. Congress made two other changes that effectively convert the credit into a near-universal child allowance. First, it made the credit fully refundable, which means that the entire amount can go to households that don’t make enough money to pay income taxes. Before, $1,400 of the $2,000 credit was refundable.

In addition, Congress ordered the IRS to begin regular payments of the credit, turning the lump-sum refunds during tax season into a routine benefit for 2021. Parents will get half of the credit’s full value over the course of the second half of 2021, shrinking the tax refund they would otherwise get in early 2022.

The IRS will send taxpayers notices about the size of their child credits and information at the end of the year they can use to reconcile the credit amounts on their 2021 tax returns, Ken Corbin, the IRS chief taxpayer experience officer, said at a tax conference May 14.

Households that have already filed their 2020 tax returns don’t need to do anything else to start receiving the payments in July. If the IRS doesn’t have a 2020 tax return, it can use 2019 data. About 80% of recipients will get the money through direct deposit, with the rest getting checks or debit cards.

The IRS will be setting up an online portal where people can opt out of receiving the monthly payments in addition to a portal where people who don’t typically file tax returns can give the IRS their information to start getting the money. The agency will soon post a list of frequently asked questions about the credit, Mr. Corbin said.

Eventually, the IRS may offer ways for people to update their bank information, address or family status, senior administration officials said.

“Don’t look for just one portal. Look for a suite of tools,” Mr. Corbin said.

IRS officials say they have been learning from their experience making stimulus payments over the past year as they design this new system, though officials expect hiccups as the government creates the program. There will be complexities, particularly in families where parents share or trade custody.

Mr. Corbin said the IRS would be working with the Social Security Administration and the Department of Veterans Affairs and would be doing outreach to community groups to reach households that might not usually file returns.

“Look for us to turn 100% full-court press on the advance child tax credit very, very soon,” Mr. Corbin said.

Democrats have hailed the credit expansion as a historic poverty-fighting effort. President Biden has proposed extending the expanded credit through 2025, while some congressional Democrats have called for making the new rules permanent.

“For working families with children, this tax cut sends a clear message: Help is here,” Mr. Biden said Monday.

Republicans have supported the child tax credit in the past, including an expansion to $2,000 that was part of the 2017 tax law. They have been wary of the expansion, warning about the change to full refundability that breaks the credit’s link to earned income.

Write to Richard Rubin at [email protected]