The Cutest Little Tax Deductions just got cuter!
In the new American Rescue Plan Act, the child tax credit has been increased making your cutest little tax deductions even cuter! The child tax credit has gone through some TEMPORARY changes. Although several Senators hope to make it a permanent change, as of right now it is only for the 2021 tax year.
Below is a break down of what to expect, when to expect it and who qualifies.
HOW MUCH DO WE GET?
$3600 credit per child age 5 and under $3000 credit per child age 6-17
WHO GETS IT?
Parents who live in the U.S., including the U.S. territories like Puerto Rico that make under $75,000 a year if they are filing single or head of household and couples filing jointly that make under $150,000 a year.
I MAKE TOO MUCH!
No worries, you still qualify for some help. If you are at or above the yearly threshold, the credit will be reduced by $50 for every additional $1,000 of adjusted gross income earned. That means, for example, the $3,000 credit provided to parents of a child aged 6 to 17 would be phased out completely for individuals earning $95,000 and those making $170,000 and filing jointly.
Families who are ineligible for the new credits because they have a higher AGI are still able to claim the $2,000 per child tax credit, which is available to individuals making up to $200,000 ($400,000 for married couples filing jointly).
WHEN AND HOW DO I GET IT?
As of this writing the IRS has stated that families would get monthly payments from July to December 2021 with the remaining credit being added on to your tax return.
So if you qualify for $3000. You'd get around $250 a month for six months and your remaining $1500 would be issued in a refund in 2022.
WHAT ELSE TO KNOW ABOUT THE NEW TAX CREDIT?
It’s fully refundable. What does that mean? Right now, if taxpayers’ credit exceeds their taxes owed, they only can get up to $1,400 as a refund. Under the new rules, they could receive the full $3,000 or $3,600 per child, depending on the child’s age.
You don’t have to be employed to get it. The new provision allows households with no income to claim the credit. This is a major change, as previous rules limited the credit to those earning at least $2,500. In the past, families with very low incomes did not receive the full credit.
UPDATE: Now payments may be sent out periodically instead of monthly.
As I was closing out this blog post. I mean literally I was done and adding #hashtags, a news alert popped up in my notifications. The headline read: "IRS chief: Tax-deadline postponement could delay launch of child tax credit program" Apparently the IRS commissioner had to testify before the Senate Finance Committee earlier today. I'm not surprised and I'm actually glad, we need answers!
I stopped dead in my tracks and watched the entire 2 hour long hearing. Pretty boring stuff!
IRS Commissioner Charles Rettig testified before the Senate Finance Committee about the impact of the coronavirus pandemic on the 2020 tax filing season. Commissioner Rettig discussed efforts to deliver payments owed to individual taxpayers and small businesses provided by the CARES Act. He also talked about some of the challenges the IRS faced related to these payments including a shortage in staffing due to stay-at-home orders, claims that have not yet been processed, as well as payments not made to those without bank accounts.
I'm going to sleep on this information and probably re-watch tomorrow before I update the blog and of course give my two cents. In the meantime if you'd like to watch the video, I'll link it for you here. If you're a CliffNotes type of person, hang tight. I'll update with a summary soon!