Monthly Child Tax Credit Payments Are Helping Families

Earlier this month, parents nationwide might've been surprised to see cash from the government directly deposited into their bank accounts. These $250 or $300 deposits marked the first monthly payments from the bolstered child tax credit passed by Congress this spring.

The Child Tax Credit (CTC) has been in place since 1997, but the American Rescue Plan Act of 2021 increased the amount from the standard of $2000 per child under the age of 17 to $3000 per child for children six to 17, and $3600 for children under the age of six. Children aged 17, who didn't qualify for a CTC before 2021, are now eligible as well.

The ARP also did something unheard of—it will send half of that tax credit directly to parents in small increments each month from July to December instead of in one lump sum at the end of the year. The remainder of the credit will be applied when taxes are filed for the 2021 tax year in 2022.

The direct payments could offer real relief for parents buckling under the costs of providing food, shelter, and clothing for their kids. But it could also bring a surprise at tax time.

Who Qualifies for CTC Payments?

The White House estimates that nearly 66 million children will benefit from the expanded CTC. Eligibility for the credit is based on income levels reported on parents' 2019 or 2020 tax returns or information given to receive the Economic Impact Payment (stimulus checks) earlier this year.

Parents must have a main home in the United States for more than half the year, and their children must have valid social security numbers. Additionally, parents must meet certain income requirements, although the White House estimates that nearly 90% of children will qualify for some form of credit.

Those income requirements are based on your modified adjusted gross income (MAGI). The CTC will be reduced to $2000 per child based on certain income restrictions:

• $150,000 if married, filing jointly, or if filing as a qualifying widow or widower
• $112,500 if filing as head of household
• $75,000 if filing as a single person or married and filing a separate return

According to the Internal Revenue Service (IRS), the only way families will miss out on the CTC is if they earn more than $400,000 if married filing jointly or $200,000 for all other filing statuses. The CTC is lowered by $50 for each $1000 over the income threshold.

Currently, the expanded CTC will only be valid for the 2021 tax year, but many experts and politicians are lobbying to make the payments permanent.

Your Tax Return May Be Different This Year

While the CTC is intended to take the financial pressure off parents, tax professionals warn that the payments may impact your tax return at the end of the year.

Kyle Harsha, EA, owner and president of Money Matters Tax and Financial Services, tells Verywell that while the tax credits were increased, the way they are disbursed could leave parents with a shortage at the end of the year.

"For anyone that is used to getting a certain amount of tax return, and using that in a lump sum to pay for tuition, or buy a car, or put into savings, then that amount is going to be lower this year if you take the direct payments," Harsha says.

For parents receiving $3600 for a child under six, the direct payments come to $1800, leaving $200 less of a credit left at tax time. For parents with multiple children that count on $2000 per child in annual returns, this deficit may sneak up on them.

For children over six, the deficit is even more significant, amounting to $500 per child when direct payments are taken at $250 per month.

Luckily, for parents that would prefer to receive their CTC in a lump sum, the IRS established a portal so that parents can opt-out of direct payments if they choose. The portal will also be available for parents to add children that may have been born during 2021.

How It's Helping Families

For many parents, the payments have already provided a financial stress-reliever. A look at social media reveals that many have used the first payment, which hit many bank accounts on July 15th, to purchase back-to-school supplies, clothing, and offset childcare expenses.

The direct payment model could be a godsend for families on or under the poverty line, according to public health expert Jacqueline Whelan, MN, RN, CNL. She's seen first-hand in her work how much of an impact direct payments could make in terms of food security and even in maternal-infant health.

"I see many families that say that financial strain is a major stressor in their home environment," Whelan tells Verywell. "The Child Tax Credit is going to relieve some of the financial strain for families when mothers may be dealing with things like postpartum depression already. When that stress is taken off, it can allow them to develop a more healthy attachment to their infants."

Whelan says that she's spoken to several families who were unaware of how these recent changes expanded benefits. When they learned of expanded payments, it gave them the breathing room to take time off to attend newborn doctor appointments or afford to take a rideshare to the doctor to care for themselves when they might otherwise have ignored symptoms of illness.

According to the Center on Budget and Policy Priorities, the tax credits could help in other ways as well, including better school performance, greater college enrollment, and increased work and earnings in the next generation.

More immediately, though, even $250 a month is enough to subsidize SNAP or WIC benefits to address the most basic need—food.