The American Rescue Plan Act of 2021, a $1.9 trillion stimulus package, is set to become law this week, launching dozens of programs designed to help Americans deal with the effects of the COVID-19 pandemic.
In addition to $1,400 direct payments and an extension of federal unemployment benefits, millions of parents will be receiving money through an expanded child tax credit.
The child tax credit is a credit that parents can claim on their income tax return to help reduce their tax bill. The amount that can be claimed is determined by the number and ages of their children.
Currently, the child tax credit is $2,000 for every child under the age of 17.
Under the plan, the child tax credit will change, but just for one year. The expansion could benefit as many as 83 million children, according to the Institute on Taxation and Economic Policy.
Here is how it will work, and what we know about how you will get the credit.
The stimulus plan would temporarily change the child tax credit for 2021 by:
- Allowing 17-year-olds to qualify;
- Increasing the credit to $3,000 per child ($3,600 per child for children younger than age 6) for many families;
- Allowing half of the credit to be paid in advance by periodic installments (probably by direct deposit) beginning in July and ending in December;
- Removing the $2,500 earnings floor;
- Making the credit fully refundable, meaning no matter what you owe in taxes, you will get a refund of either $3,000 (or $3,600, depending on a child’s age), or half that amount if you take the other half in the July-December periodic installments.
Who will get the credit?
Families who make up to $75,000 (adjusted gross income) on single returns, $112,500 on head-of-household returns and $150,000 on joint returns.
The adjusted gross income on your 2020 income tax return is what the IRS will use to determine eligibility. If you have not filed a 2020 return by the time the program eligibility is determined, the IRS will use the 2019 return.
For those who do not qualify for the expanded credit, the regular credit of $2,000 per child can be taken as long as their AGI is below $400,000 on joint returns and $200,000 on other returns.
Can you opt out of the periodic payments?
If you prefer, you will be able to opt out of the periodic payments and take the full credit on your 2021 income tax return.
According to the plan, the IRS is required to create an online portal that will allow people to update their income, marital status, and number of children who qualify for the credit. That portal will also allow you to opt out of the periodic payments if you want to take the full child credit on your tax return.
Cox Media Group