In March 2021, President Joe Biden signed the American Rescue Plan Act into law. In addition to providing stimulus checks of up to $1,400 for most adults, it also expanded the child tax credit. Eligible parents can receive up to $3,600 to help defray the cost of raising their sons or daughters. Let’s take a closer look at what the child tax credit is and how to know if you’re eligible to claim it.
What You Need to Know About the Child Tax Credit
Until March 2021, the child tax credit provided parents of dependents under the age of 17 with a tax break of up to $2,000. As much as $1,400 of that was classified as refundable, which means that you would get that money even if you didn’t have a tax liability. Parents of children who were 17 or 18 were typically eligible to receive a nonrefundable credit of $500.
However, the American Rescue Plan Act provides individuals who have dependents under the age of 18 with a refundable credit of $3,000. The amount that an individual receives increases to $3,600 if he or she is claiming a dependent under the age of 6.
Are You Eligible for the Expanded Tax Credit?
If you have children who are under the age of 18, you will most likely qualify for the standard $2,000 credit. However, to qualify for additional cash, your adjusted gross income (AGI) must be below $75,000 if you’re a single filer. This number increases to $150,000 if you are filing jointly with a spouse. The amount that you’re entitled to receive is reduced by $50 for every $1,000 that you make above either of these thresholds.
How Do You Claim the Credit?
You must file a federal income if you wish to claim the extra money. If you opt to take the additional money as a lump sum, you’ll also need to file a federal income tax return in 2022. For the 2021 tax year, you have the option of receiving up to 50% of what you’re owed in monthly installments.
It’s important to note that you may be eligible for this credit even if you didn’t make any money during the 2020 tax year. In previous years, the government restricted this benefit to those who had an income of at least $2,500.
Additional Information About the Monthly Installment Payments
The first payment was made on July 15, and additional payments will go out through the end of 2021. The federal government will not garnish these payments for any reason. However, private creditors may be allowed to do so in an effort to recoup what they are owed.
Claiming the expanded child tax credit may provide your household with financial flexibility. However, it’s important to make sure that you qualify for it before you choose to do so. Otherwise, you may run the risk of owing the IRS money in 2022. JMV Financial Services can answer any questions that you might have about your tax situation.