October Child Tax Credit Payments Hit Bank Accounts, With Downward Adjustments For Many Taxpayers

Taxes

The Internal Revenue Service announced that most families will see their fourth advanced child tax credit payment in their bank accounts today. It shows up as IRS TREAS CHILDCTC on your bank statement. The payments will reach approximately 36 million taxpayers getting a total of $15 billion. If you’re getting payments by check, the check should arrive by the end of the month.

Getting these payments, authorized by the American Rescue Act in March, into the hands of families with children under 18 is a big undertaking, and it’s not all smooth sailing. For most taxpayers who have filed a 2019 or 2020 tax return, the monthly payments, which started in July and run through December, are automatic. But the payment amounts can change depending on recently processed tax returns. The final true up will take place when you file your 2021 tax return next year.

In the latest snafu, which the IRS says has been corrected, nearly 1 million taxpayers didn’t get their September payment on schedule. They’re folks who recently updated their bank account or address information on the IRS Child Tax Credit Update Portal. For married taxpayers who file jointly, if only one spouse changed an address or bank account, the payment would be split in two between the existing account or address and the new account or address. In some cases, payments were too high. In those cases, the October, November and December payments will be reduced to adjust for the overpayment, typically a $10 to $13 reduction per child in each of the three remaining monthly payments. The IRS will send follow up letters in these instances.

The September glitch follows an earlier technical snafu that meant delays for more than 4 million taxpayers in receiving their August payments.

On the flip side, for families who didn’t get earlier payments they were due but are getting their first payment this month, they’ll get their total advance payment for the year spread over three months instead of six, making each payment larger. No wonder there is so much confusion.

The IRS is facing so many questions around the new monthly advance child tax credit payments that it’s up to letter O, in an alphabetized list of FAQ topics regarding the advance payments. Topic O covers how to return a payment. Topic N covers commonly-asked immigration-related questions. Topic M covers commonly-asked shared custody questions. It’s complicated.

The future of the child tax credit—making the enhanced advance payments permanent—is one of the main platforms of the $3.5 trillion social policy plan that the Democrats are trying to push by the end of the month. But priorities like paid leave and free pre-school are competing for the same dollars, and the means to fund it are in question.

Here’s how the child tax credit works. Normally you get the Child Tax Credit when you file your tax return (you’d get the 2021 credit in the spring of 2022 when you file your 2021 tax return). But the American Rescue Act both increased the tax credit dollar amount and included a provision to make half of the credit available as advance payments on a monthly basis starting July 15—for 2021. So half the total credit amount comes as advance monthly payments, and you claim the other half on your tax return next year. The enhanced credit provides parents with a $3,000 credit ($250/month) for every child age 6 to 17, and $3,600 ($300/month) for every child under age 6 (that’s up from $2,000 per dependent child up to age 16). Individuals earning up to $75,000 a year, heads of household up to $112,500 a year, and joint filers up to $150,000 a year are eligible to receive the full amount of the enhanced credit. The credit is nonrefundable, meaning you don’t need income to receive it (normally to take advantage of a tax credit you need income that it would offset). Earn too much to get the enhanced credit? The advance payments apply to the basic $2,000/year child tax credit, too. That phases out at $440,000 of income for a couple.

Keep in mind—the advance child tax credit is an advance, meaning you could get a smaller refund or owe more when you file your 2021 taxes next spring. To decline advance payments or to update your bank account information or mailing address, go directly to the IRS Child Tax Credit Update Portal or access it from the IRS’ Advanced Child Tax Credit Payments In 2021 page.

The IRS is still urging people to sign up for the advance payments: The agency is sending letters reminding families who normally aren’t required to file a tax return that it’s not too late to sign up via the non-filer sign-up tool.

And the IRS is working on increasing the functionality of the portal, with more upgrades promised for sometime this “fall” when you’ll be able to add or subtract the number of your qualifying children, whether by birth or adoption, report a change in your marital status, or a change in your income—all events that would change the amount of your advance payments.

Further Reading:

Millions Still Due 2020 Tax Refunds, As October 15 Deadline Extension Nears

Maximum Social Security Taxes Will Increase 2.9% While Benefits Will Rise 5.9% In 2022

House Finally Details How It Will Fund $3.5 Trillion Social Policy Plan

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