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Monthly child tax credit payments hit millions of parents' bank accounts this month, but plenty of questions remain about how the newly enhanced tax credit will work.

Thanks to a provision in the American Rescue Plan, the child tax credit, which traditionally helps to offset parents’ federal tax burden, got a major facelift. The legislation boosted the total amount of the credit from $2,000 per child in 2020 to $3,600 per child under 6 and $3,000 per child ages 6 to 17 this year. More importantly, it made it so half of the 2021 expanded child tax credit will be prepaid in the form of monthly payments to families.

To help cut down on the confusion over such a major change, we’ve compiled everything you need to know about the monthly child tax credit payments right now, including who qualifies, how much individual payments will be and how to make sure you get yours. We’ll add more details as more information rolls in:

Do I qualify for the new child tax credit?

The IRS created an online tool called the Advance Child Tax Credit Eligibility Assistant to help families figure out if they're eligible for the advanced payments and if so, how much money they will receive.

Regardless of whether you've qualified for the child tax credit in previous years, you may want to confirm your eligibility under the new rules. The American Rescue Plan removed the minimum earning requirements (meaning you don’t actually have to earn any income) for the 2021 child tax credit. It also drastically lowered the income ceiling for eligibility in order to directly target families considered most in need.

Parents who are married and filed a joint tax return with an adjusted gross income (AGI) of $150,000 or less in 2020 and head of household filers with an AGI less than $112,500 qualify for the maximum monthly payments this year. Single filers who earn less than $75,000 can also qualify for the whole benefit, but the majority of eligible single parents are able to file as head of household.

Parents with an AGI higher than $150,000 for joint filers or $112,500 for heads of household won’t be eligible for the full amount of the benefit, but most households will qualify for at least a portion of it. The credit phases out before cutting off entirely at $440,000 for joint filers and $240,000 for heads of households.

When will monthly payments for the 2021 child tax credit start?

The first round of payments were sent out by the IRS on July 15. Payments will be issued on the 15th of each month, unless that falls on a holiday or weekend. You can find the exact schedule for payments here: When Is the Next Child Tax Credit Payment? Here's the Schedule for the Rest of 2021.

How will the 2021 child tax credit be paid out and how much money will my family get?

The child tax credit typically works by lowering the amount of federal income tax parents owe, which parents could either claim on their W-4 or at the end of the year on their tax return.

The big difference in 2021 is that half of the child tax credit will be paid out via monthly payments of up to $300 per child through the end of the year. While some media outlets have taken to calling them “monthly stimulus checks”, they are more similar (though not entirely) to what’s known as a child allowance or family benefits in other developed countries.

Here’s an example of how it will work: Let’s say you’re a married couple earning less than $150,000 and you have two children under the age of 6. You qualify for the maximum amount, $3,600 per child, for a total of $7,200. You’ll receive half of that — $3,600 — in monthly child tax credit payments of $600 during the second half of the year.

Alternatively, say instead you had three children ages 2, 5, and 9. In this instance, you’d get $7,200 for the younger two, and another $3,000 for the 9 year old for a total of $10,200 with half of the money ($5,100) paid out in monthly installments of a combined $850.

And finally, back to those previously mentioned income limits: If you and your spouse had a combined AGI of $160,000 last year and two children under 6, the credit would be reduced to $6,200 ($3,100 each) and paid out in monthly installments of $516.66.

Monthly payments are being issued via direct deposit, paper check or debt card, but the IRS is prioritizing direct deposits so parents can get the money more quickly. If your primary bank account has changed since you last filed a tax return, you can let the IRS know using the Child Tax Credit Update Portal. However, the update will only apply to your August 15 payment and onward.

Can I opt out of monthly payments to get a bigger tax refund? Should I?

It is possible to opt out of the monthly payments and instead receive the benefit as a lump sum at the end of the year. Parents looking to opt out can visit the IRS's web portal for unenrolling from advanced payments.

While some experts have predicted that ongoing child benefit payments will help lift millions of children out of poverty by providing financial assistance year-round, research from the Brookings Institute has indicated that the majority of Americans believe monthly tax refund payments to be less helpful than an larger, one-time payment. However, the study also showed some evidence that when respondents were given information that tied the timing of guaranteed monthly or quarterly disbursements to specific annual events that tend to be more costly, like back-to-school or Christmas shopping, interest increased.

Everyone’s situation is different, and while monthly payments may be more advisable for most, there are a few situations where opting out may be a better decision, like if you typically owe money to the IRS or share custody of child. We've broken down those scenarios in more detail here: Why Some Parents Should Opt Out of Monthly Child Tax Credit Payments.

How can I update my family's information with the IRS?

The IRS will be upgrading the current main web portal for qualified taxpayers to make changes to their income, and adjust the number of qualifying children in their home by the end of September 2021. This information will be updated when that portal becomes available to the public.

How do I get the advanced child tax credit payments if I don't usually file taxes?

If you don't usually file taxes but you now qualify for the child tax credit, you can use the Non-filer Sign-up Tool. This tool is specifically for families who do not typically file a tax return, usually because their gross income is less than $12,400 if they're single or $24,800 if married. According to the 2020 Current Population Survey, around 7.5% out of the total 74 million children in the U.S. live with non-filers, meaning the IRS has no way of sending checks to these otherwise qualifying families. Using this portal, non-filers with internet access will be able to sign up for monthly checks and the tax refund payment by providing information about their finances, number of children and their ages.

Does the new child tax credit mean I’ll get a bigger tax refund?

Possibly! Obviously if you opt out of the monthly payments, then at the very least you will increase your chances of receiving a larger refund come tax season. But the American Rescue Plan also made it so that this year’s child tax credit is fully refundable, meaning if the amount of credit you qualify for is more than the total income tax you owe at the end of 2021, you’ll get the remaining amount of the credit as cash via your tax refund.

This is more likely to happen for low-income families, who usually end up owing less federal income tax. If a family that opted out of monthly payments only would've had $6,000 in federal income tax withheld this year before applying the child tax credit and has two children under 6, their refund from those tax credits alone would be $1,200. On the flip side, if a family with two children under 6 would pay $20,000 in federal income tax throughout the year normally, the child tax credits will have reduced their tax burden by $7,200, but that's still $12,800 owed in taxes, so none of the child tax credit will be refunded to them.

How many payments will there be in total in 2021?

If families choose to receive the monthly installments, they will get six payments in 2021, one for each month from July to December. However, once you file your 2021 taxes in 2022, if the amount of the credits exceeds what you owe in federal income taxes, you'll receive another payment as part of your tax refund. That totals out to potentially seven payments from Uncle Sam over the course of the next year.

What am I allowed to do with the money?

Parents are free to use the money however they choose. While the goal is to help families cover the costs of caring for children, the child tax credit has no specific requirements how it can be used, making it different from welfare programs like SNAP Food Benefits (sometimes known as food stamps). There’s also no “use it or lose it” component to the credits — if you want to sock the money away into a 529 college savings account or contribute to a retirement plan for your child, that’s perfectly fine.

Can I get the child tax credit if I have a baby or adopt a child in 2021?

If you welcome a new child into your home at any time in 2021, they qualify for the tax credit. All you have to do is update your family information on the IRS’s forthcoming child tax credit web portal or notify the agency via the USPS if you do not have consistent internet access.

How long will the new child tax credit last?

Many supporters and lawmakers are pushing to make these changes permanent, and some want to go even further in restructuring how family benefits will work. But as of right now, this iteration of the child tax credit is only available in 2021.

President Biden's $1.8 trillion American Families Plan includes a provision that would extend this year’s version of the credit through 2025 by increasing taxes on the wealthiest Americans. However, the provision is still only a four-year extension and will need to pass through both the House and Senate before it is guaranteed.

This story has been updated to correct the income cutoffs for qualifying for the child tax credit.

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