Check your bank account. If you have kids aged 17 or younger, things may be by leaps and bounds today – thanks to the Internal Revenue Service of all people.

But before you venture out, find out if the extra dollars are really special to you. If not, you could get a nasty surprise at tax time next year.

The IRS has now made the first of six monthly payments in 2021 to more than 35 million families with nearly 60 million children. These payments can be large: an eligible family with three young children could receive up to $ 900 a month for the remainder of the year. The first round of payments is about $ 15 billion, according to a Biden government official.

The payments come in part from Congress’s expansion of the child tax credit in March to up to $ 3,600 per child for that year, up from a normal $ 2,000 to help alleviate child poverty. The expansion is only planned for this year and is expected to cost around $ 100 billion. Unlike a tax deduction, a credit is a dollar-for-dollar reduction in taxes.

In a historic move, Congress also urged the IRS to use existing records to send families monthly prepayments of part of their total child credits for 2021 this year so they don’t have to wait to file tax returns. Most payments are made by electronic deposit.

Amanda Ray, a 34-year-old widow whose husband died when their daughter was six months old, says the expansion of the child loan has already changed her life. Ms. Ray wanted to leave a dangerous area of ​​Chicago for the suburbs with safer schools for her daughter, who is now 5, but struggled to find an apartment after losing her hospitality job during the pandemic. She said she was able to move to Villa Park, Illinois, in June after her current landlord learned she would receive advance payments.

“The pandemic made everything unsafe, but he and I knew that I could pay the rent because of the child loan,” says Ms. Ray, who expects to be reinstated soon. Meanwhile, her daughter will attend a city sponsored camp with swimming lessons and kindergarten preparation.

For many families, however, the advance payments in the coming spring could bring unpleasant surprises. The IRS makes payments based on the income shown in the returns for 2020 or sometimes 2019. Families whose incomes have increased or have otherwise changed may have to repay all or part of the advance payments on their 2021 tax returns.

Even applicants who are eligible for the prepayments could get far lower refunds or larger tax bills in the next year as they get half of their child credits upfront. Because of this, Phyllis Jo Kubey, a New York City registered agent, has advised most of her clients to decline the prepayments.

“The child credits are big and they’re dollar-for-dollar tax compensation, so taxpayers who get half this year will fall short and owe the IRS at tax time – which most people fear,” says Ms. Kubey.

Around 1 million applicants have already opted out of prepayments, according to an administrative official. Here’s what you should know about this new and complex benefit.

What is this year’s child tax credit and how much is the IRS sending now?

For 2021 alone, the maximum child tax credit is $ 3,600 for any child under the age of 6 and $ 3,000 for any child aged six to 17 as of December 31, 2021.

Without the upgrade, the child under 16 years old would have $ 2,000 per child credit.

Also for 2021 only, starting July 15, the IRS will send half of each family’s total estimated credits in six monthly installments. So, an eligible family with three children, ages six, 10, and 14 will receive up to $ 9,000 in child tax credits for 2021, and $ 4,500 of that should be paid in six monthly payments this year.

The IRS has sent letters informing recipients of their prepayments, and its website has many more details. The prepayments are based on the last tax return processed – usually 2020, but sometimes 2019. So if a family’s income is different in 2021, the prepayments may be too high or too low.

Parents who do not receive monthly payments can claim the full child credits they are eligible for on their 2021 tax return.

Are there any income limits for the 2021 child loan?

Yes, and they can be confusing. The portion of the loan that’s only valid for 2021 – either $ 1,600 or $ 1,000 per child – starts to expire at $ 75,000 of adjusted gross income for most single parents and $ 150,000 for most married couples. Above these limits, the taxpayer will lose $ 50 in total credits for every $ 1,000 in additional income, so the upper limit will vary based on income, number of children, and enrollment status.

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For example, let’s say a couple with a combined income of $ 200,000 and three children, ages six, 10, and 14. The exit would cost them $ 2,500 of their $ 3,000 in child credits, which are only valid for 2021, according to an IRS spokesman.

But that couple would still get the $ 2,000 permanent credit for each child as the exit starts at $ 400,000 for most married couples ($ 200,000 for most singles). As a result, this family’s total child tax rebate would be $ 6,500 for 2021, and they should receive about $ 540 monthly payments for the remainder of that year.

In contrast to previous years, applicants do not need to have earned income in 2021 to claim child credits.

Are there any further admission requirements?

Yes. Among other things, the child must have a social security number.

If a family receives prepayments that they are not entitled to, do they have to return the money?

In many cases, yes – either through a lower refund or a higher balance due to the IRS.

Taxpayers who receive prepayments this year will file the 2021 tax return with the IRS. Applicants who are not entitled to some or all of their prepayments – for example because their income has increased or because a former spouse is eligible for the child this year – could owe the IRS on their behalf unless their income is below $ 40,000 for single parents and $ 60,000 for couples submitting together.

I am entitled to my child loan prepayments. How will this affect my taxes in 2021?

It could have a huge impact on them, either lowering your refund or increasing your tax bill, since you have already received a large chunk of the tax credits for your children.

Here is a simplified example. For example, let’s say a couple with two children over the age of 5 and an income of $ 220,000 received a refund of $ 500 for 2020. Your 2021 income is similar, so that’s too high for this year’s additional child credit. But they’re still getting $ 4,000 total permanent loans – and getting half of that in upfront payments of about $ 333 a month this year.

Next year, when you file your 2021 tax return, the $ 2,000 prepayment will no longer be available to help lower your tax bill. So instead of getting a $ 500 refund, they could owe the IRS $ 1,500.

How do taxpayers know if they are only getting payments for the permanent child loan, not for the enlargement? One tip is that the monthly payments will likely be around $ 167 for one child, $ 333 for two, $ 500 for three, and so on.

How can I stop or change monthly prepayments? What if I need to change my address or bank account details?

You can go to the IRS Child Tax Credit Update Portal and follow the instructions. Those who do not have an account with the IRS or any other government agency will need to create one and, in some cases, provide photo identification.

For taxpayers opting out of prepayments, detailed information is available in topic J of the IRS Frequently Asked Questions on Child Tax Income, including deadlines for deregistering. Note: Each spouse of a married couple must deregister separately.

Taxpayers who choose not to use the IRS portal to deregister could also adapt by increasing their paychecks or the quarterly estimated taxes.

Can the IRS apply my child loan prepayments to unpaid tax debts or child support?

No, such an IRS spokesman. But the agency can request tax refunds on such debts or child support in 2021.

Write to Laura Saunders at [email protected]

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