Good news for parents! The child tax credit has been expanded for 2021! The recently passed American Rescue Act expanded the eligibility for the credit and also expanded how much money you can receive. According to the Institute of Taxation and Economic Policy, about 80 million children line in households that would benefit from this tax credit. It says an average of $4,570 going to low-income families.
What Is the Child Tax Credit?
The Child Tax Credit is a tax credit that parents and caregivers can claim to help reduce their tax bill. The tax credit will reduce their tax bill depending on the number and ages of their dependents. The tax credit was for parents and caregivers with children under the age of 17.
So What Changed?
First, the child tax credit limit was increased and the increased amount depends on the age of the child. The tax credit previously had a limit of $2,000 for all children under the age of 17. It is increased to either $3,600 or $3,000. For children under the age of 6, the tax credit is now $3,600, for children ages 6-17, the tax credit is now $3,000. The tax credit is also fully refundable. This means if your tax credit is worth more than your tax debt, the amount left over from your tax credit will be refunded back to you.
The changes also lowered the income caps. The new caps are $75,000 for single filers, $112,500 for a head of household, and $150,000 for married couples filing jointly. The qualification status will be based on either your 2019 or 2020 tax return information. Those who aren’t eligible for the higher tax credit will still be able to claim the traditional child tax credit of up to $2,000 per child, as long as they meet those eligibility requirements.
Tax Credit Payments
In addition to the changes with the amount of the tax credit, parents will be able to get an advance on half of their 2021 tax credit through monthly payments. The monthly payments will start in July and go through December 2021. They will be either monthly payments of $250 or $300 per child. If you choose this option, the remainder of the child tax credit will be given once you file your 2021 tax return in 2022.
Changes Are Temporary
The changes to the Child Tax Credit are just for 2021. It is considered a temporary reprieve for the year due to COVID-19 and the country-wide shutdown. Another bill would have to be passed to make changes for the Child Tax Credit in 2022.