WASHINGTON (NewsNation Now) — One of the major components of President Joe Biden’s $1.9 trillion American Rescue Plan is a one-year expansion of the 2021 Child Tax Credit, with parents and legal guardians expected to get the credit early in the form of advance monthly payments from the IRS starting in July.
Here are 4 key changes which apply for 2021 only:
- The maximum Child Tax Credit increases from $2,000 per kid to $3,600 for any child under six years old and $3,000 for those 6-18 years old, raising the eligibility age by a year as well
- It is now fully refundable regardless of income, meaning parents and legal guardians can receive the full amount even if they owe $0 in taxes
- Instead of receiving the credit when they file their 2021 taxes next year, families will receive half of the total as regular checks from July to December of this year
- Added benefits will be based on the most recent tax return and are phased out based on income
Who qualifies for the expanded 2021 Child Tax Credit?
The maximum additional benefits of $1,000 or $1,600 per child (depending on age) included in the American Rescue Plan begin to phase out for parents and guardians who report taxable incomes above a certain level: $75,000 for single, $112,500 for head of household and $150,000 for joint returns.
Anyone earning below those amounts is entitled to the full expanded benefit. Above those levels, the payments received per child begin to go down by $50 for every $1,000 earned above the limit.
For those who do not qualify for additional benefits, the Child Tax Credit remains the same: $2,000 per child for families earning less than $200,000 for single or $400,000 for joint returns. Benefits begin to phase out above those income levels, as they did previously.
When will the expanded Child Tax Credit monthly payments start?
While the IRS hasn’t officially announced their plans, the Department of Treasury said parents and guardians will receive part of their Child Tax Credit benefits through, “periodic payments from July 1, to December 31, 2021.”
It’s assumed “periodic payments” means they will break half of the total amount a family will receive into monthly payments, so families do not have to wait for a lump benefit when they file their taxes in 2022.
So families earning the maximum amount for a child under six years old could receive monthly checks of $300 from July to December.
What does this mean for my taxes?
Since the IRS will essentially be paying a portion of the Child Tax Credit to taxpayers early, the overall tax burden for some people could go up when it comes time to file in 2022.
The other half of the benefit will also be made available to families after they file their taxes next year.
However, the IRS said there’s no need to file an amended return to receive the latest benefits. They will be creating a portal for people to notify them if they have had another child since they last paid taxes.