In spring 2021, Congress passed the American Rescue Plan Act of 2021 (ARPA), which introduced a flurry of changes to U.S. laws and regulations. Included among the many updates were several important adjustments to the child tax credit (CTC). Now, thanks to a new tool introduced by the IRS, certain taxpayers can more easily sign up to receive monthly installments of the advance CTC payments.
Find out how the tool works and what employees need to know about the child tax credit.
The child tax credit (CTC) is a payment that parents and guardians can claim on their annual tax returns if they include a child as a dependent on their Form 1040.
To claim the CTC, the child must meet certain conditions. These include:
In 2020, the CTC was calculated at $2,000 per child, per year—a sum that was delivered to qualifying households upon filing their returns. Up to $1,400 of the CTC is refundable.
Congress made two major—and temporary—changes to the CTC with the passage of ARPA in March 2021. These include:
To learn more about the major changes made to the CTC, review this BerniePortal resource.
The federal government made these adjustments for a few different reasons. First, many lawmakers who supported the measures want to encourage young people to have children. BBC reported in May 2021 that the U.S. birth rate fell for a sixth consecutive year in 2020—its lowest since 1979.
Another reason? The CTC delivery system was outdated. Many parents may prefer receiving one lump sum payment when they file their taxes but others certainly prefer the option to receive monthly installments instead.
Finally, the new system can boost the economy. The IRS reports that approximately 88% of children will be covered by the enhanced benefits while researchers at the Brookings Institute say the temporary measures could cut child poverty in half.
In June 2021, the IRS released a new tool to help families receive advance CTC payments beginning July 15, 2021. The signup tool is designed to make it easier for non-filer parents to report basic information about themselves and their dependents to the IRS.
As a result, these families can easily receive direct payments by providing their name and dependents’ names, mailing address, email, dates of birth, Social Security Numbers, bank account numbers (if applicable), and an identity protection personal identification number (IP PIN).
Yet not all families are eligible. Parents with qualifying children born before 2021 should use the tool under the following circumstances:
This same tool can also be used by taxpayers to report that they didn’t receive the full amounts of the first and second Economic Impact Payments (often colloquially referred to as “stimulus checks”). The IRS stresses that families that filed or plan to file a 2020 tax return shouldn’t use the resources, among other important restrictions listed in this link.