Since July, qualifying parents have been receiving monthly payments of $250 or $300 per child from the IRS—and these payments might continue.
The monthly advanced child tax credit, which was implemented under the American Rescue Plan Act signed by President Biden earlier this year, is an advance payment made in monthly installments and worth half of the full child tax credit—up to $1,800 depending on the age of your children.
Per the $1.75 trillion Build Back Better framework released late October by the White House, the credit will continue in 2022. When finalized, the move will ensure that the parents of some 60 million children receive the benefit for at least one more year.
The framework calls for a continued $300 per month for every child under six and $250 per month for every child ages 6 to 17. The 2022 plan also includes permanent refundability for the Child Tax Credit, meaning payments would be available to parents who previously haven’t been eligible because their earnings were too low to file taxes.
According to an August 2021 study from the Urban Institute, extending the advance child tax credit through as far out as 2025 would result in 4.3 million fewer children in poverty.
Take Action: How to Use Your Monthly Payments to Invest in Your Child’s Future
Details of the 2022 Advance Child Tax Credit
But it’s not just low-income people who stand to benefit from the child tax credit. The majority of American families across income thresholds receive financial support from the credit. For tax year 2021, the credit was increased from $2,000 per qualifying child to $3,600 for children ages 5 and under and $3,000 for children ages 6 through 17.
The 2021 credit was broken in half to create the advance payments: The first half went out via monthly installments from July through December 2021, and the IRS will pay families the second half (up to $1,800) at the time of filing.
The 2022 advance child tax credit will likely work the same. However, nothing is finalized yet. Democrats are still hammering out details of the framework. At the very least, the current advance payments will likely remain in effect in 2022. The next step is for Democrats to vote on the framework and then write the actual legislation, which will need to pass Congress.
How to Qualify for the Advance Child Tax Credit
To qualify for advance payments of the child tax credit, you (or you and your spouse if filing jointly) must have filed a previous year’s tax return and claimed the Child Tax Credit on the return.
If you didn’t file, you can still qualify for the child tax credit if you gave the IRS your information in 2020 to receive the Economic Impact Payment for non-filers.
The income requirements for the child tax credit are based on your modified adjusted gross income (MAGI). Qualifying families with incomes less than $75,000 for single, $112,500 for head of household, or $150,000 for joint returns are eligible for the temporarily increased credit.
For incomes above these MAGI limits, the credit is reduced by $50 for each $1,000 and phases out completely at $200,000 ($400,000 for married filing jointly).
Your children must be your legal dependents according to the IRS’ definitions to qualify you for the benefit.
How Long will Advance Child Tax Credits Continue?
Democrats are reportedly discussing extending the advance child tax credit program until 2024, but that remains to be seen.
President Biden’s original proposal suggested continuing the advance payment program through 2025, and some Democrats argue for making the benefit permanent.
Meanwhile, Democratic senator Joe Manchin of West Virginia expressed reservations about expanding the child tax credit to non-working parents—and his vote is critical for any proposed bills to pass the Senate.
It remains to be seen how long the advance child tax credit will last.
Should I Unenroll in Advance Checks?
Opting out of receiving advance checks could benefit some families. For some who don’t rely on the extra monthly cash flow, it might be easier to wait until the lump-sum payments that come with a tax return for planning and budgeting purposes.
Unenrolling especially makes sense for divorced couples who each claim a child of different ages (and therefore might get unequal payments). For parents filing separately, it might be preferable to pay each other back once per year, compared to having monthly budget check-ins to divide the funds fairly.
You also may want to opt-out of monthly payments if you tend to owe money at tax filing time and want to use the lump sum to offset the one-time large payment.
And let’s not forget: If you’re fortunate enough to not need the cash to cover basic monthly expenses, you could invest your payments—either the lump sum payment at tax time or when you get your monthly checks.
To put it into perspective, a family with two children ages 5 and 9 and eligible for the full credit will receive $6,600 ($3,000 for the 9-year-old plus $3,600 for the 5-year-old). That’s a significant chunk of change. If you don’t have an immediate purpose for the advance child tax credit, you could always consider opening a custodial savings or investment account for your child.
When is the Deadline to Opt Out?
By now, you probably know if you’ve been getting monthly payments or not. You can still make changes for the last two payments. The deadline to opt out of your Nov. 15 payments is Monday, Nov. 1 by 11:59 p.m. ET.
To make changes to your payments, use the IRS’s online Child Tax Credit Update Portal by the appropriate deadline. (You’ll need an existing IRS username or an ID.me account to access the portal.)
The Bottom Line
How you use your child tax credit is only one piece of your overall financial plan. You can take a few actions now to get yourself on the right track.
Read up on how to use your monthly payments to invest in your child’s future.
Sign up for the Personal Capital Dashboard. Millions of people use these free and secure professional-grade online financial tools. You can use them to see all of your accounts in one place, analyze your spending, and plan for long-term financial goals.
Consider talking to a fiduciary financial advisor for more detailed guidance on your financial plan.
Get Started with Personal Capital
Author is not a client of Personal Capital Advisors Corporation and is compensated as a freelance writer.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. Compensation not to exceed $500. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money. Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.