What to know about the new Child Tax Credit
When the American Rescue Plan became law in March, the focus was on immediate relief that came in the form of $1,400 stimulus checks and supplemental federal unemployment benefits of $300 per week. Another important feature of the plan was the Enhanced Child Tax Credit, which entitles millions of American households to a fresh round of payments, starting this summer. Here’s what you need to know about the changes.
How much is the new credit? The government increased the amount of the existing Child Tax Credit from $2,000 to $3,600 for children under age 6, and $3,000 for children age 6 to17 years old.
Besides the amount, what else is different about the credit? Previously, families claimed the tax credit when they filed taxes. With the expansion, half of the amount will be divided into six monthly payments (up to $300 per month per child under 6 and up to $250 per month for each child between ages 6 and 17). Uncle Sam will distribute the monthly payments from July 15 through December 15. The other half of the credit will be like the old method — eligible Americans will have claim it on their 2021 tax returns, when they file next April.
Who qualifies for the credit?Those who have kids who are 17 or younger as of December 31 of 2021 and make below certain amounts for 2021, will qualify for the expanded credit. The income limits are: $75,000 or less for single taxpayers $112,500 or less for heads of household $150,000 or less for MFJ/qualified widows/widowers
Single filers who earn up to $95,000, heads of households who earn up to $132,500, and married couples with combined incomes up to $170,000 will also receive payments, though the amounts will be smaller. The credit is reduced by
$50 for every $1,000 of income over those threshold amounts. The IRS has provided an interactive tool to help people determine whether they qualify for the credit and if so, for how much.
Are non-filers eligible? Yes, the IRS has a non-filers portal, where folks who do not file taxes can provide their information to the agency and they will then receive payments.
How do I get the money? The IRS already sent letters to 36 million households that it believes are eligible based on their 2019 or 2020 federal income tax returns. However, if your income, address, bank account and number of kids has changed since then, then you should update it with the IRS on the Child Tax Credit Update Portal.
What happens to the old child tax credit? It’s still in force. Even if you’re phased out from the enhanced credit, the regular Child Tax Credit of $2,000 is available to single filers who earn up to $200,000 (phases out above $240,000) and married couples who earn up to $400,000 (phases out above $440,000). If eligible, you would claim it when you file 2021 taxes.
What if I don’t qualify, but receive money? This is where things get tricky. If your 2021 income is too high to qualify — and this could easily happen for many Americans who were laid off, worked reduced hours, or were furloughed last year, but have secured new jobs this year — you must proactively OPT OUT of the credit through the IRS un-enroll tool before the first payment is made on July 15. If you don’t, you will owe the money back to Uncle Sam when you file your 2021 returns.
If you aren’t sure about your income, it’s best to un-enroll and then if your income is low enough to qualify, you can claim the entire credit when you file your 2021 tax return.