Parents: Did you recently notice some extra money appear in your bank account? If so, you have your kids—and the federal government—to thank. Why? The first payments from the expanded federal child tax credit began to be sent out to households across the U.S. on July 15.

Here’s what you need to know about the new, increased monthly payments and how they impact your financial planning.

What is the Advance Child Tax Credit?

Advance Child Tax Credit payments are early payments from the IRS that amount to half of the estimated Child Tax Credit you can claim on your 2021 tax return when you file next year. If the IRS has processed your 2019 or 2020 tax return, these monthly payments will automatically be made starting in July and continuing through December based on the information contained in that return.

Who is eligible?

You qualify for Advance Child Tax Credit payments if you have a child under the age of 18 at the end of 2021. Also, you or your spouse must have your “main home”—that is, your place of residence for more than six months of the year—in one of the 50 states or Washington, D.C. You don’t need a permanent address to get these payments. Children must have a Social Security number, but parents do not need to have legal status in the U.S.

The IRS has a quick and easy tool to check your eligibility, available here.

How much do I get?

The Child Tax Credit used to be up to $2,000 per child annually. This year, that number was bumped up to $3,600 annually for children ages 5 and under and $3,000 annually for kids aged 6 through 17. On a per-month basis, payments can be up to $300 per child.

Payment amounts are income-dependent, and begin to be reduced if your adjusted gross income (AGI) as listed on your most recent tax return exceeds:

• $150,000 if married and filing jointly, or if filing as a qualifying widow or widower;
• $112,500 if filing as head of household; or
• $75,000 if you are single or married and filing separately.

The first phaseout reduces the credit by $50 for each $1,000 your modified AGI exceeds the above threshold. This number won’t go below $2,000 until your AGI exceeds $400,000 if married and filing jointly, or $200,000 for all other filing statuses.

How does it work?

The IRS will pay half the total credit amount you qualify for monthly, starting in July. You’ll then claim the other half when you file your 2021 income tax return. Advance Child Tax Credit payments run through December and will be disbursed on the following dates:

• July 15
• August 13
• September 15
• October 15
• November 15
• December 15

Why now?

The expansion of the credit was part of the American Rescue Plan, a $1.9 trillion economic relief package that President Biden signed into law in March 2021 in response to the economic ramifications levied by the COVID-19 pandemic. According to the White House, the credit will help cut child poverty in half for 2021.

The benefit is set to expire after one year, but President Biden is pushing for it to be extended through 2025 and ultimately made permanent.

What does it mean for my financial planning?

First and foremost, the Advance Child Tax Credit is available to families without any tax obligations, meaning it will not be reported as income on your 2021 tax return and is fully refundable. Even families that earn too little money to pay federal income taxes can receive the full amount.

Of note, the total amount of Advance Child Tax Credit payments that you receive during 2021 is based on an estimate the IRS is making based on your most recently filed tax return. If the total the IRS pays you is greater than the Child Tax Credit amount that you are allowed to claim on your 2021 tax return—for instance, if someone in your household gets a higher-paying job this year and you’re pushed into a different bracket, or a child turns 18 before the end of the year—then you may have to repay the excess amount on your 2021 return during the 2022 filing season.

If you choose, you can unenroll from receiving Advance Child Tax Credit payments in favor of waiting to get a bigger tax refund when you file your 2022 taxes early next year (or because you know you won’t be eligible for the credit in 2021). To opt out of monthly advance payments, click here.