Most families with kids will get a significant 2021 tax credit under President Joe Biden's American Rescue Plan.
A provision in the American Rescue Plan, the $1.9 trillion relief plan signed into law by President Joe Biden in March, will soon mean significant 2021 tax savings — and possibly advance refunds — for most Americans with kids.
Here is what you need to know about the expanded Child Tax Credit.
Why is this happening?
The credit is part of the massive pandemic relief bill proposed by Biden and passed by the Democratic majorities in Congress.
The rescue plan, which passed out of Congress in March without a single Republican vote, was designed to address both the COVID-19 pandemic and its ongoing economic impact. Much of the news coverage of the legislation focused on the $1,400 relief checks it provided for most Americans, the expanded unemployment benefits, the $350 billion in emergency aid for cash-strapped state and local governments, and the billions of dollars in funding aimed at more safely reopening schools for in-person learning and curbing the coronavirus' spread.
But the package also contained significant 2021 tax cuts for lower- and middle-income families, a savings of about $3,040 for the average American. For most people, this meant a bigger tax cut than they got under Donald Trump's 2017 Tax Cuts and Jobs Act.
Center for American Progress senior fellow Seth Hanlon and research associate Galen Hendricks noted ahead of the bill's passage in March that the expanded child tax credits included in the legislation were "a key reason the bill will cut child poverty in half."
Who is getting the credit?
The vast majority of American families with children will see some savings thanks to the expanded credit.
According to the independent Tax Policy Center, 92% of families with children will be able to access the Child Tax Credit for 2021, up from 89% under previous law, and will save an average of $4,380, up from $2,310.
A writer for the website CNET estimates about 36 million households will be eligible.
To qualify for a credit, a family must have a dependent who is 18 or younger or a full-time college student between the ages of 19 and 24.
It must make less than $240,000 in adjusted gross income for a single or head-of-household filer or $440,000 for a couple filing jointly.
How much will it be?
For each child under age 6, most families will receive a $3,600 credit. The Internal Revenue Service will pay half of that amount in $300 monthly installments in advance, beginning July 15.
For each child age 6 through 17, most households will get a $3,000 credit, including $250 monthly advance payments.
Families with kids age 18 or full-time college students age 19 to 24 will get a $500 one-time payment in 2022.
What about nonfilers?
Those who qualify for the credit but did not need to file a 2020 tax return will have to take some additional steps.
The IRS has an online sign-up tool for those who want to receive their advance payments but "are not required to file a 2020 tax return, didn't file one and don't plan to" but reside in a U.S.-based main home for most of the year.
"It's much simpler than a full tax return," tweeted the Center for American Progress' Hanlon earlier this month, "but still many people will need assistance and we need to get the word out!"
Where to learn more?
The IRS' website has information about who qualifies for advance Child Tax Credit payments, and CNET has a tax credit calculator that can be used to estimate how much an individual might receive.
Published with permission of The American Independent Foundation.
