The New Child Tax Credit and How it Affects Your Family
The Child Tax Credit, also referred to as CTC, is a tax credit for parents and caregivers to claim on their taxes to help reduce their overall tax bill. The total credit amount depends on the ages of the children. In prior years, the Child Tax Credit was worth up to $2,000 per eligible child. With the passing of the American Rescue Plan Act, the Child Tax Credit has increased to as much as $3,600 per child.
The new COVID bill relief plan allows families to receive a refundable tax credit of $3,600 for children ages five (5) and under and $3,000 for children ages 6 through 17. The age limit for qualifying children has also increased from 16 to 17.
Families can receive part of the credit as an advance on their 2021 taxes, if they wish. The American Rescue Plan Act makes this credit fully refundable. This allows families to receive their CTC as a tax refund, even if their tax bill totals zero. Half of the money that families are eligible for can be paid out to them over the next six months if they choose.
The CTC is based on families’ 2020 tax information or their 2019 tax information if they have yet to file their 2020 tax return. Here are the eligibility requirements:
-Married couples who filed or plan to file jointly are eligible for the CTC if their adjusted gross income is below $400,000.
-Individuals with children are eligible for the CTC if their adjusted gross income is below $200,000.
-Families in Puerto Rico are also eligible for the CTC.
The tax credit begins phasing out for individuals at $75,000 and married couples at $150,000 per year. This means that individuals making over $75,000 and married couples making over $150,000 will not see a full CTC, but a partial credit instead. Those who file as head of household will see their CTC(s) phasing out at $112,500 per year. Heads of households who earn more than $112,500 will also not see a full CTC, but a partial one instead.
It is expected that the IRS will begin making payments of the refundable CTC to eligible families from July 2021 to December 2021. During this phase, families will receive half of the total payment they are eligible for. However, it has not been decided how frequently the CTC payments would be made out to eligible families and individuals. Many lawmakers expect these payments to be monthly, but ultimately it depends on the IRS’ capacity and ability to set up the payment schedule for all eligible families.
To learn more about the eligibility and documentation requirements for the CTC, click here.