On Thursday, March 11, the President signed into law the $1.9 trillion American Rescue Plan.
While this does include another stimulus payment for eligible taxpayers, it also includes a large one-year increase to the Child Tax Credit.
What is a Child Tax Credit?
Child Tax credits were implemented to assist parents and/or caregivers to help reduce their total tax bill when it comes time for filing.
Where are we now?
Currently, the child tax credit is worth $2,000 per child under the age of 17 that can be claimed as a dependent (with a valid Social Security number). The credit begins being phased out if your AGI is above $400,000 on a joint return or $200,000 on a single/head of household return. The amount of this credit that can be refunded is limited for low-income households.
Where are we going?
The American Rescue Plan legislation is aimed to stimulate the economy as the country navigates the devastating financial effects of COVID-19. Part of this legislation includes an overhaul of the Child Tax Credit. The new legislation would provide $3,600 per child under the age of six and $3,000 per child between ages 6 and 17. Families could have the opportunity to receive the Child Tax Credit on a monthly basis rather than as one lump sum making it easier to fulfill payment obligations. The payments are planned to begin in July 2021 and continue through December; however, the administrative challenges of this may postpone this period.
Who is eligible?
This increased credit would be available for single taxpayers earning $75,000 or below or $112,500 for head-of-household or joint filers. Only one taxpayer can claim the tax credit, even if the qualifying child divided time between more than one household during the tax year.