The American Rescue Plan’s Child Tax Credit Expansion
On March 11, 2021 President Joe Biden signed the American Rescue Plan into law. One important piece of this legislation was the increase in the Child Tax Credit for tax year 2021.
From July to December of 2021, ½ the credit amount will be paid to taxpayers in installments, and the rest you will claim on your 2021 tax form that you will complete in 2022.
You can receive this refundable tax credit even if you have no income, BUT YOU MUST FILE A TAX RETURN.
The amount you will receive is: $3,600 for each child age 0-5, and $3,000 for each child age 6-17, depending on your Adjusted Gross Income.
This tax break begins to phase out if your income is over $75,000 for single filers, $112,500 if you file as head of household, or $150,000 if you file a joint return. The phaseout is $50 for every $1,000 earned above the limit.
If you earn between $76,000 - $200,000 as an individual or between $150,000 - $400,000 jointly, you will still be able to at least take the original $2,000 per child deduction on your 2021 tax return that you file in 2022. Above those limits the credit is further reduced.
IMPORTANT TO REMEMBER – this is a tax CREDIT not a DEDUCTION. That means that the money is credited against the taxes that you owe, it is not deducted from your taxable income. That also means that the tax refund you will receive in 2022 might be LESS than you anticipate, because you received ½ of this credit up front from June to December of 2021. Also note this expanded credit as of now is only available for tax year 2021.
Here’s a calculator you can use to anticipate the amount of your credit: https://www.kiplinger.com/taxes/602334/2021-child-tax-credit-calculator
Please consult a tax professional for additional questions and clarifications on this important topic. For non-tax specific financial questions, feel free to contact me at: https://www.yoursherpas.com/contact