American Family Act Replaces Annual Child Tax Credit with Monthly Payments: $360/Month for Kids Under 6

The American Family Act is taking the old, familiar Child Tax Credit (CTC) and completely overhauling it, effective for tax years starting after December 31, 2024. This bill scraps the annual lump sum most families rely on at tax time and replaces it with a system of advance, refundable monthly payments. Think of it as a steady paycheck for your kids, designed to smooth out family budgeting throughout the year.

The core change is Section 24A, which establishes the new monthly credit amounts. For each qualifying child aged 6 or older, you’d receive $300 per month. If the child is under age 6, that jumps to $360 per month. And here’s a massive one-time boost: a newborn, in their first month, qualifies for a payment of $2,400 to help cover those initial big expenses. Crucially, this credit is fully refundable, meaning even if you owe zero in taxes, you still get the full benefit, which is a game-changer for lower-income families.

The Monthly Cash Flow vs. The Tax Bill

Under Section 7527A, the IRS will send these payments monthly based on your eligibility from the previous year. This predictable cash flow is a huge win for families juggling rent and grocery bills. For example, a working parent with two kids under six would receive $720 every month, rather than waiting for $8,640 at the end of the year. The bill also includes specific protections: these advance payments cannot be garnished or offset for federal debts, including past-due child support, ensuring the money goes directly to the family unit.

However, this monthly system introduces a new layer of complexity: reconciliation. The total advance payments you receive throughout the year must be subtracted from the total credit you are actually due when you file your taxes. If your income or family situation changes mid-year—say, you get a raise that pushes you above the income limits, or a child moves out—and you received too much in advance payments, you may have to pay that excess back to the IRS. For busy people whose incomes fluctuate, this risk of an unexpected tax bill could be a major headache.

Where the Credit Starts to Fade

While the benefit is generous, it’s not universal. The full monthly payment starts to phase out if your Modified Adjusted Gross Income (MAGI) exceeds $150,000 for joint filers or $112,500 for others. This initial reduction is relatively gentle, dropping the credit by 5 percent of the income above these thresholds. A secondary, steeper reduction kicks in at higher income levels ($400,000 for joint filers), meaning the credit is highly targeted towards middle and lower-income households.

For dependents who don’t qualify for the new monthly payment (like older teenagers or adult relatives you support), the bill creates a separate, non-refundable $500 credit (Section 24B). This is a nice, clean addition for families supporting non-child dependents, though it is subject to its own income phase-out starting at $400,000 for joint filers.

The Fine Print on Compliance and Penalties

The bill gets very serious about compliance. To claim the credit, you must include the child’s Taxpayer Identification Number (TIN) on your return, and that TIN must have been issued by the return due date. This strict requirement could create barriers for families facing delays in obtaining necessary identification documents.

Even more concerning are the penalties for improper claims. If the IRS finds you claimed the credit fraudulently, you face a 120-month (10-year) ban from claiming the credit. If they find you claimed it due to reckless disregard for the rules, the ban is 24 months (2 years). While anti-fraud measures are necessary, a 10-year ban is an extremely severe penalty that could devastate a family’s budget, especially if the definition of “reckless disregard” is applied broadly.