The American Rescue Plan enacted earlier this year established a new Child Tax Credit program. It increased the credit from $2,000 per child to $3,000 per child for children over the age of six. For children under the age of six, it was raised from $2,000 to $3,600. These updates were made to reflect an inflating economy and help working families during the pandemic.
Most families have automatically been receiving monthly Child Tax Credit payments since July 15 without having to take any action. If you have not been receiving the payments, you will need to sign up by November 15, 2021. The IRS has created an online portal to make the process easier and to update your personal information as needed. Even non-filers can sign up and receive the tax credits for their families.
Tax filers also have the option to claim the full credit (up to $3,600 per child) when filing their 2021 taxes next year.
How much of the Child Tax Credit you receive will also depend on your income. All working couples who have a household income of less than $150,000 or single parents (Head of Household) with an income less than $112,500 will be eligible to receive the full tax credit. The amounts will go down gradually if your income exceeds those amounts. That is why it is a good idea to keep your information up-to-date with the IRS to avoid overpayments and money that will be owed back when you file your taxes.
As part of the American Rescue Plan, the new Child Tax Credit amounts are only for 2021. President Biden is hoping to extend it into future years as part of his Build Back Better plan, but no additional changes have been enacted into law just yet.
The Child Tax Credit is designed to help lower-income families with childcare expenses. The pandemic has been very tough on many working families, which is why the credit amount was raised for this year. If you are eligible for this credit, you should be receiving payments or you should be signing up on the IRS portal before November 15. Also, be sure you task your tax advisor if you have been receiving payments or if you want to claim it all at once as part of your 2021 tax return. You have options. Just know this credit is available and how to go about claiming your funds if you aren’t already!
For all your family tax planning and financial planning needs, contact Illumination Wealth today.