It's time to check the mailbox and bank account for extra cash from the October child tax credit that rolled out Friday.
Many parents saw the money hit their accounts as expected just like it arrived for the past three months.
But no, unfortunately, it looks like it won't be smooth sailing for everyone. As has happened in the past, some families are scratching their heads over some new quirky shortfalls for their payments.
Millions of eligible families are currently receiving up to $300 per month for each qualifying child ages 5 and younger and up to $250 per month for each child ages 6 to 17. The monthly payouts run from July through December.
The next round of payments will be Nov. 15 and Dec. 15.
Many families expected to receive the same dollar amount each month once the advance child tax credit payments began July 15. And many are receiving the same amount each month.
But some started noticing smaller payments for September and now they say they see small payments for October. Some are even getting less money in October than they did after a cut in the payment for September.
Some took to social media to say they received only half of their child tax credit money this month.
October's scary numbers
Sandy Harrison of Sheridan, Arizona, told me that the Internal Revenue Service information online indicated that she and her husband would receive roughly half of what they received at the start for their two children, ages 7 and 12.
The couple received $500 a month in July and August. Then, somehow the amount was cut to $313 in September. And now they're expecting $229 for October.
They filed their 2020 income taxes in early February and received an income tax refund in March. They don't have custody issues. And they really don't know why the payments are lower; their bills certainly aren't.
Several people told me that their $500 payments turned into $313 in September. One Michigan family reported that the October payout was in the $115 range after receiving $250 each month during the first two months for their one daughter but then their payment dropped to around $155 in September.
What's confusing is that many people have absolutely no idea why the payouts now seem to be varying month to month.
No letters have been sent to them by the IRS to explain what's going on here. It's often a shock when they see the direct deposit information, the check or go online to review information at IRS.gov for a child tax credit update.
Is it a glitch? Is it something that reflects their individual tax situation? Will the payments drop again in November or December? Who knows?
The IRS has not responded to repeated questions about why payments could be lower in September and again in October for some families. No information is available on how many families could see less than they've come to expect.
What's your best guess?
All we can do at this point is speculate.
George W. Smith, a CPA with Andrews Hooper Pavlik in Southfield, said he's not heard yet from his clients who are seeing odd drops in payments. But he suggested that it's possible that someone who just filed their 2020 tax returns could be seeing a smaller payout because the IRS has adjusted the family's credit down based on their internal computations. Or the IRS could have just processed their 2020 return that was just filed earlier in the spring.
"But that's just my best guess," Smith said.
Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting, said he's not able to determine specifically why an advance payment would have been reduced by a given amount for some families.
But he noted that the IRS has stated in the past that it will adjust advance payments if it receives additional information.
"This could be based, for example, on information on a child aging out of qualification, a determination that a different parent was entitled to the advance payment, or a change in the income level affecting the phaseout," Luscombe said.
For some, it might be an income phaseout issue, Luscombe said. But it's hard to say.
Again, that's his best guess.
How income influences the child credit
While not well known, there are income cutoffs for the credit and many taxpayers don't qualify.
The child tax credit was temporarily expanded in March as part of pandemic-related relief.
The IRS will make advance payments of half the total credit amount over six months in 2021. The other half is to be claimed on the 2021 income tax return when the return is filed next year.
The phaseout range for the basic $2,000 child tax credit for 2021 starts at a modified adjusted gross income of $400,000 for married filing jointly and $200,000 for other filers.
But the income level is much lower for families to be able to qualify for extra money that's part of this expanded credit.
For 2021, there could be an extra amount of money on top of the $2,000 for many families who have more modest incomes.
If you'd qualify, you'd get up to an additional $1,000 for children ages 6 through 17 and an additional $1,600 for children up through age 5.
You'd qualify for the entire amount of the larger credit if you are single and your income is less than $75,000. Or, if you are single and file taxes as a head of household, your income must be under $112,500 in 2021 to qualify for the full benefit.
If married and filing a joint return, you'd qualify for the full benefit if your combined income is under $150,000 in 2021.
The IRS notes that above these income thresholds, the extra amount above the original $2,000 credit is reduced by $50 for every extra $1,000 in modified AGI.
Some families are choosing to skip or opt out of receiving the advance payments out of concern that they could owe money back when they file their taxes in the spring.
The tax industry estimates that more than 1 million people have opted out via a tool at IRS.gov but the numbers aren't exact because the IRS has not released such data.
Reasons why someone would opt out include:
—Their income in 2021 is too high to qualify them for the credit.
—An ex-spouse or another family member, for example, qualifies to claim their child or children as dependents in 2021.
—Their main home was outside of the U.S. for more than half of 2021.
While the new monthly program has run fairly smoothly for many families, it has had glitches along the way.
When it came time for the August payments, a mix up created delays for roughly 4 million people or more who ended up receiving checks for their August advance child tax credit, instead of direct deposit as took place in July. And that glitch created delays.
The IRS later said the August mix up took place because a "process was missed that caused a percentage of payments to be issued as paper checks instead of direct deposit." The mistake apparently happened as the IRS was preparing to issue the advance child tax credit for August. When it came time for the September payments, a group also saw payment delays and some reported receiving far less money than they did in July and August. The IRS later told the Detroit Free Press that fewer than 2% of those receiving the credit — which would amount to roughly 700,000 families — had to wait past the Sept. 15 roll out date to receive their money.
For September, the IRS said many people who did not receive timely payments had been taxpayers who recently made an update on their bank account or address on the IRS Child Tax Credit Update Portal.
These delayed payments, the IRS said, tended to involve "married filing jointly taxpayers where only one spouse made a bank or address change."
The credit is sizable for many families and is helping cover spending on school clothing, as well as cover family bills that built up during the pandemic when some lost work.
The average payment in August in Michigan was $439, according to earlier data from the IRS.
