The American Rescue Plan expands the existing Child Tax Credit from $2,000 per dependent to $3,000 per child from 7-17 and $3,600 per child under age 6. To qualify, the child must be 17 or younger, have a Social Security number and live with the filer for at least six months during the year.
Previously, the Child Tax Credit was available for parents with Adjusted Gross Income of $200,000 or less for single individuals or $400,000 or less on a joint return. It will now start to phase out for single people earning more than $75,000 a year or families earning more than $150,000 a year with the $400,000 and $200,000 caps still in place. AGI will be determined by 2019 or 2020 tax fillings.
How parents will receive the money has changed as well.
In the past, parents claimed the credit once a year when filing their taxes. The change now allows the credit to be advanced to parents in periodic payments, likely $300 or $320 a month. The payments would start in July and last through December, meaning parents would receive a total of $1,800 or $1,920 over the final six months of 2021. The remainder would be claimed as a credit on 2021 taxes, Kiplinger reported.
Families who aren't eligible for the higher credit will be able to claim the regular tax credit of $2,000, minus any payments they received, as long as their income remains below the $200,000 for single and $400,000 for individual thresholds.
Another change – the plan removes the earnings floor. People used to have to earn at least $2,500 a year to qualify for the rebate. That has been removed.
The changes are for one year, though Democrats are pushing to make it permanent.
When will payment start?
The timeframe for the payments to start – coupled with traditional tax season and the distribution of $1,400 stimulus payments – means the IRS could be scrambling to get the Child Tax Credits to parents starting in July.
The IRS is currently developing an online portal to allow individuals to update income, marital status and number of qualifying children. The portal will also give people a way to opt out of the advance payments in favor of taking the full credit on their 2021 returns.
The launch of the portal has not been announced.
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