This is the first time the child tax credit is being paid out on a monthly basis. When lawmakers beefed up the credit as part of the Democrats’ $1.9 trillion coronavirus relief package in the spring, they opted to provide half of it this year to help parents with their monthly expenses, including housing, food, clothing and school supplies. Families will get the other half when they file their 2021 tax returns next year.
But receiving the monthly payments could lead to some unwelcome surprises at tax time in the spring, particularly for parents in certain situations. They may be better off opting out of this year’s income stream via an IRS portal and receiving the credit as a lump sum when they file their 2021 taxes, which is how it’s usually paid.
Unlike the three rounds of stimulus checks that many Americans received during the pandemic, the monthly deposits are actually early payments of families’ estimated child tax credits for 2021. But the payments are based on 2020 or 2019 income and household size.