If you received an unexpected envelope from the IRS this week, it might not be long before a cash payment arrives as well. The agency is sending out letters to families potentially eligible for the newly expanded child tax credit, a federal benefit that's set to be paid in monthly installments to the majority of households with kids starting July 15.
The IRS said Monday it had started to send the form letters to about 36 million households who may be eligible based on their tax returns. The agency will later send a second personalized letter with an estimate of the automatic payments. (As for parents who have not yet received the first letter, an IRS spokesperson could not say what that meant, if anything at all.)
The child tax credit, formerly up to $2,000 per child, was revamped and increased for 2021 when the American Rescue Plan pandemic relief bill was approved by Congress in March. The new credit is a maximum of $3,600 for each child under 6 and $3,000 for each child aged 6 to 17, depending on the taxpayer's income. The upcoming payments—an advance on half the value of the total credit—are up to $300 a month per child, and those that accept them can claim the remainder at tax time next year, just as they did in previous years.
The payments will be distributed automatically for most, but the IRS is creating an online portal in the coming weeks that will enable taxpayers to opt out. Instructions on how to do that should be available by the end of June, the agency said. Depending on how likely your circumstances are to change, you may be better off turning down the advance payments in favor of the lump sum next tax season. The IRS said it would be updating a special page on its website with more information on the credit.
Individuals making up to $75,000 a year and married couples who file their taxes jointly and make up to $150,000 per year will receive the credit’s maximum value. For those making more than that, the amount decreases on a sliding scale and eventually phases out entirely. The new credit is just for 2021, although some Democratic politicians hope to make it permanent.