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The IRS Child Tax Credit is providing advance payments of the income tax credit to eligible families.
STILLWATER, Okla. – As part of the federal stimulus legislation known as the American Rescue Plan, through December, the Internal Revenue Service is making available half the total credit amount taxpayers with children would normally be entitled to when filing taxes. According to the federal agency, the first Child Tax Credit payments were distributed July 15.
“This is not free money,” said Cindy Clampet, Oklahoma State University Extension family resource management assistant specialist. “It is simply shifting a tax credit you would normally get to deduct from your 2021 tax obligation to when you can claim in early 2022. In other words, it is like getting part of your tax refund early.”
The option is worth up to $300 per child per month, depending on individual eligibility. Participants can claim the other half of the credit when they file their 2021 income tax returns. Families also have the option each month of unenrolling from the program for the rest of the tax year.
On its face, participation in the American Rescue Plan seems simple enough, Clampet said; the payments are automatically scheduled unless taxpayers opt out. The risk lies in accounting for events between now and then – the uncertainty of an economy in flux. A positive turn could cause difficulty later.
“If you don’t receive a tax refund when you file, you will have to pay that money back. And if your income has increased and you no longer qualify in 2021, you also will have to pay it back,” Clampet said. “For example, the labor market could regain its footing, and you get a new job.”
Some of the key components of the plan:
Most families do not need to take any action to receive payment. Normally, the IRS will calculate payments based on 2020 tax returns. If a return is not available, either because it has not been filed or it has not yet been processed, the IRS will instead use 2019 filing information.
The payment will be up to $300 per month for each qualifying child under age 6 and up to $250 per month for each qualifying child ages 6 to 17.
The IRS has scheduled advance Child Tax Credit payments for July 15, Aug. 13, Sept. 15, Oct. 15, Nov. 15 and Dec. 15.
Taxpayers can go online to the agency’s Child Tax Credit update portal to notify the IRS of changes in their income, filing status and other information.
Many families, economically hamstrung because of the COVID-19 pandemic, clearly need the funds for monthly expenses, Clampet said. However, others will have to ask themselves whether they can get by until filing 2021 taxes next spring.
“There’s no easy answer. It really is a personal choice that will have to be based on a clear understanding of the family’s finances,” she said.
OSU Extension provides additional information online for managing personal finances