In a significant move, the Biden-Harris Administration has introduced the Child Tax Credit through The American Rescue Plan, delivering unprecedented tax relief for working families during a critical time. With many parents in need, understanding this tax credit is essential, and we’ve compiled key insights to answer your questions.
We spoke with financial expert Julia Martinez from Financial Insights, who provided essential information about the new tax credit and its operation.
Am I Eligible for the Child Tax Credit?
To qualify for the full payment, your modified adjusted gross income (MAGI) should be $75,000 or less for single filers and $150,000 or less for joint filers. If your MAGI exceeds these thresholds, the IRS will implement a two-phase reduction of the payment. Initially, the credit amount of $3,600 for children aged 5 and under and $3,000 for children aged 6 to 17 will decrease by $50 for every $1,000 over the eligible income limit. Importantly, regardless of income, your credit cannot drop below $2,000. For individuals earning over $200,000 and couples over $400,000, the reduction follows the same $50 per $1,000 rule.
Eligibility for monthly payments also requires that:
- Your child is claimed as a dependent on your tax return and is related to you.
- Your child is a U.S. citizen, national, or resident alien, and aged 17 or younger.
- Your child lives with you for at least half the year and possesses a valid Social Security number.
- You provide more than half of their financial support.
What Will My Payment Amount Be?
To estimate the amount you could receive, utilize this calculator to evaluate your potential benefits based on your income and the number of qualifying children. Expect up to $300 per child for those 5 and under, and up to $250 per child for those 6 to 17.
Do I Need to Apply or Take Additional Steps?
Typically, the IRS will reference your most recent tax return (2019 or 2020) to determine eligibility. If you are not required to file a tax return, you can register for monthly tax credit payments here.
Will I Owe Money During Next Year’s Tax Season?
As this tax credit is an advance, if your payments exceed what you can claim on your 2021 tax return, you may need to repay the difference. For instance, if you claimed three qualifying children in 2020 but only one in 2021 without adjusting your payment status, you may owe the IRS when filing your return. However, safeguards are in place. If you primarily lived in the U.S. for over half the year and your MAGI is below certain thresholds, you will not have to repay any excess. The thresholds are:
- $60,000 for married couples filing jointly or qualifying widows/widowers.
- $50,000 for heads of households.
- $40,000 for single filers or married couples filing separately.
Conversely, if your MAGI exceeds $120,000 for married couples or $80,000 for single filers, you won’t qualify for repayment protection.
How Are Payments Distributed?
If the IRS has your bank details, payments will be issued via check or direct deposit. Your banking information can be sourced from your most recent tax return, any information provided through the non-filer tool, or federal agencies like the Social Security Administration.
Are Monthly Payments Taxed?
No, you won’t have to worry about taxes on these monthly payments.
This information may seem overwhelming, but it is crucial for many American families. President Biden’s efforts are vital, providing assistance when it is most needed.
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Summary:
The Child Tax Credit introduced by the Biden-Harris Administration offers significant financial relief for families, with eligibility based on income and other criteria. Payments are typically disbursed directly by the IRS, and while they are advances, safeguards exist to protect certain income brackets from repayment. Understanding the details can greatly benefit families during these challenging times.