The Internal Revenue Service will start rolling out advance child tax credits to 39 million American households with children beginning July 15.
This new form of stimulus created by the Biden administration in reaction to the economic recession caused by the global pandemic is expected to help boost consumer spending power in the second half of the year. Spending will likely funnel into back-to-school shopping at retailers across the country, analysts have said.
Over the next six months, American families will receive an advance, or early payment, each month that will total half of their expected 2022 child tax credit.
Under its American Rescue Plan, the Biden administration increased the total annual child tax credit for most families to $3,000 for each child between 6 and 17 years old and to $3,600 for each child under age 6. That’s up from $2,000 per child in 2020.
“This tax cut will give our nation’s hardworking families with children a little more breathing room when it comes to putting food on the table, paying the bills, and making ends meet,” President Joe Biden said in a June 21 statement from the White House. Biden has also proposed extending the child tax credit in his American Families Plan.
Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, said the credit is “a welcome development” that will positively impact retail sales.
“Any time money flows to consumers in the form of tax credits, annual tax refunds and additional types of government stimulus, we see increased consumer spending on footwear,” said Priest. “We already expect the 2021 back-to-school season to be the biggest in our industry’s history for a variety of different reasons including the expected full return to in-person learning for most school districts in the U.S. and the record levels of disposable income available to American families.”
Here are three things to know about the upcoming child tax credits:
1. Americans will receive the tax credits each month through December:
For most families, the credits will be directly deposited or sent via mail automatically each month. Families need to have filed their taxes in either 2019 or 2020 in order to be eligible. People who signed up for a stimulus check from the IRS will be automatically enrolled.
If families have not filed taxes previously, they may still be able to sign up for the tax credit using the IRS’s Non-Filer Sign-up Tool.
“Experts project that the expanded Child Tax Credit could potentially help lift one-half of all children out of poverty if all eligible families sign up to receive the monthly payments,” the White House said in a statement.
2. The tax credit will phase out as Americans earn over $150,000 jointly:
For Americans who previously filed taxes jointly and earn $150,000 a year or more, the tax credit will reduce to $2,000 per child. This credit reduction also applies to people who file as head of household and earn $112,500 a year or more, as well as to people who are single filers or married filing separate returns earning $75,000 a year each.
Those who earn over $400,000 a year for people who are married and filing jointly will see the per-child tax credit reduce below $2,000.
3. It’s possible to opt out of the tax credit altogether:
Because this is an advance tax credit, people can choose to opt out. This is suggested especially if there is an expectation of owing income taxes for 2021, according to the IRS.
People who opt out will instead receive the full credit per child when taxes are filed next year for the 2021 tax year.
To opt out, visit the IRS Tax Credit Update Portal.