The Child Tax Credit benefits working families by allowing them to claim a refundable credit per eligible child. Under the new American Rescue Plan Act, the amount you can claim has increased! Instead of $2,000 per child, you can now claim $3,600 per child for those 5 years and under, and $3,000 for children between 6 and 17years old for the 2021 fiscal year. Families with older children could benefit from a $500 tax credit. Dependents that are 18 years old and those between the age of 19 and 24 who attend college full time may qualify.
The IRS is setting up an online portal for the Child Tax Credit and will begin disbursing up to $300 per child in monthly payments by July. The monthly direct payment coming your way will be for each child 17years old and younger whom you claim for tax purposes. The IRS will automatically sign families up based on the information it has even if they didn’t claim the credit when they filed. But those who normally don’t file, will have to file a 2020 tax return for the IRS to have a record of the children and dependents the taxpayer will claim.
Through the online portal, families will be able to choose whether they wish to receive half the total credit as monthly payments and claim the remainder on their 2021 tax return – or if they wish to receive the lump sum as a tax refund, minus any taxes owed, when they file in 2022. Families will also be able to change their status as their economic or family situation changes.
Families could receive a payment of $300 per child under 6 years and/or $250 per child under 18 years per month. The legislation envisioned the payments starting in July and running through December covering half the credit. The remainder, $1,800/$1,500 per child, would be available to families as a rebate credit when they file their 2021 tax return in 2022.
With the new changes for the 2021 fiscal year all families who have Social Security Numbers and are under the income eligibility threshold, regardless of whether they have income, will have access to the federal checks and the remainder of refundable credit when they file their 2021 income tax returns in 2022. This will allow those on unemployment to access the credit as well with the earnings floor removed.
Individuals will qualify for the enhanced Child Tax Credit if their annual earnings are below $75,000; or a joint income of up to $150,000 for married couples. If your earnings are above those limits, you will receive a reduced credit which gradually phases out and end for individuals earning $95,000 and married couples earning $170,000 filing jointly.
Families will also want to note that the Child and Dependent Care Credit has been enhanced for 2021 by the American Rescue Plan https://www.fuoco.cpa/american-rescue-plan-act-brings-relief-for-2021/. To make child care and elder care more affordable, the new stimulus law provides a child care tax credit for kids under age 13 — a total of up to $4,000 (prior was $3K) for one child, or $8,000 for two or more children. The credit is refundable and available to families making less than $125,000 a year. Those making between $125,000 and $400,000 may receive a partial credit. See our related article on ways to save the Nanny Tax: https://www.fuoco.cpa/nagging-nanny-taxes-not-going-away/
Reach Out To Us: Your family could see a big financial boost each month, depending on how many children you have. But the details can be confusing over which dependents and families qualify for the child tax credit and how much money you can expect to receive once the benefit checks start to arrive. Even parents of babies born or adopted in 2021 can take advantage of the credit this year. Note that you likely don’t need to file an amended tax form to take advantage of this credit. There are additional qualifications and details, we are happy to answer any questions you may have. Call 855-542-7537 or email CPA@Fuoco.com.
