You may have heard on the news recently that federal child tax credit 2021 payments will soon be going out to Ohio families and families across the country. Learn what’s new about the child tax credit 2021, how to find out whether you qualify for the child tax credit, and what your options are for receiving payment.
Prior to President Joe Biden’s signing the $1.9 trillion COVID relief package earlier this year, the child tax credit was $2000 per child under age 17. The credit was available at the time families filed their tax returns. In order to be eligible for the credit, the household must have earned at least $2,500 in income for the tax year. In addition, the credit was only partly refundable: if the amount of the child tax credit was more than the taxes owed by the household, the taxpayer could only receive a maximum of $1400 as a refund.
Under the relief package, the amount of the child tax credit has been increased to $3,600 for each child under the age of six, and $3,000 for each child under the age of 18. The credit is available to families with low or no income. What’s more, the child tax credit in 2021 is fully refundable, meaning that even if a household owes no taxes, they can still receive the full amount of the child tax credit as a refund.
Significantly, rather than waiting until tax filing time, families can receive half of their child tax credit as periodic monthly payments from July to December of 2021. That translates to $300 per month for each child under 6, and $250 per month for each child under 18. The remaining portion of the child tax credit can be claimed on the household’s 2021 income tax return.
To make sure you are enrolled to receive advance payments, unenroll so that you can take payment as a lump sum refund later, or change your bank account information, use the Internal Revenue Service’s Child Tax Credit Update Portal.
The amount and structure of the federal child tax credit was changed for 2021 specifically to help families who are struggling financially due to the COVID-19 pandemic. Families in dire financial straits need to pay their bills now; they don’t have the luxury of waiting for a tax refund. Rather than having to wait until tax season to receive the refundable child tax credit, families will receive an infusion of cash on a monthly basis to pay bills and spend on necessities for their children such as shelter, groceries, childcare, clothing, and more.
Some sources estimate that the expansion of the credit will reduce the number of children by over 40%, lifting about 4.1 million children above the poverty line. An estimated 1.1 million children will be lifted out of “deep poverty,” which is defined as a household income of less than half the federal poverty threshold. Parents with no income, or little enough that they ordinarily would not have to file a tax return, should file a tax return in 2021 in order to receive the child tax credit.
The expanded child tax credit is expected to be of particular help to Black and Latino children, many of whom were previously unable to benefit from the full amount of the credit. The federal government is working with thousands of community organizations across the United States to get information about the expanded tax credit into the hands of those who need it most.
It’s not just families in poverty who will receive relief from the child tax credit. Single filers who earn $75,000 or less per year, heads of household with annual incomes of $112,500 or less, and taxpayers filing joint returns who make $150,000 or less are eligible for the full expanded tax credit. The enhancement to the credit phases out gradually for taxpayers who earn more than those amounts.
The existing child tax credit begins to phase out for single filers and heads of household earning in excess of $200,000 per year, and joint couples who make more than $400,000 annually. To learn if your family is eligible, take advantage of the Internal Revenue Service’s Advanced Child Tax Credit Eligibility Assistant.
The expansion of the child tax credit is for tax year 2021 only. President Biden proposed keeping the expanded credit through 2025 in his American Families Plan, and there are some Democrats who would like to make the expansion of the child tax credit permanent. While doing so would give assistance to poor families, it would also carry a price tag estimated at over $1 trillion over a decade.
Most American families with minor children will receive funds from the expanded child tax credit 2021. If yours is among them, you may have questions about how best to maximize this benefit, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.