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Accounting Aid Society is the expert you need to navigate the recent tax code changes

Expanded child tax credits will provide relief for people raising children

by Michelle Martin
for Accounting Aid Society
The newly expanded child tax credit provides assistance for nearly 90% of American families by increasing eligibility and the amount of the credits.

The expansion of the child tax credit (CTC), part of President Biden’s American Rescue Plan, has been called one of the most effective poverty-alleviation programs ever put in place by the federal government.

Combined with other elements of the American Rescue Plan, like the earned income tax credit (EITC) and expanded child and dependent credit, the refundable tax credits and advance payments are expected to cut childhood poverty in half. 

“For many Americans raising children, these expanded credits could mean the difference between working multiple jobs to make ends meet, or working one job and being home to help out with homework and share dinner together,” said Matt Hetherwick, director of Individual Tax Programs at Accounting Aid Society in Detroit.

The relief comes at a critical time as nearly 9 million more Americans – including 1.5 million children under age 17 – became poor during the COVID-19 pandemic. In Michigan, the pandemic increased the percentage of children living in poverty to 17.6%.

Many families with children will begin seeing relief as early as July 15, when monthly payments of up to $300 per child will begin.

This comes as great news for families raising children – that’s if they know the programs are out there and how to accurately maximize the intended benefits. Here’s what everyone should know.

The relief resulting from the child tax credit comes at a critical time as nearly 9 million more Americans – including 1.5 million children under age 17 – became poor during the COVID-19 pandemic.

What to know about the expanded credits

The newly expanded child tax credit provides assistance for nearly 90% of American families by increasing eligibility and the amount of the credits. 

The credits have been increased to $3,000 for each child under age 17, or $3,600 per child under the age of 6. Unlike the previous child tax credit – which was a partially refundable – the new amount is fully refundable. This means most parents and guardians who claim children as their dependents will be eligible to receive the full amount – regardless of whether they earn wages.

The credits will be distributed in two ways. Anyone raising a child will receive half of their total child tax credit amount this year, distributed in six monthly payments beginning July 15. The remainder will be paid when taxpayers file their 2021 taxes next year. 

The monthly payments, which will be distributed from July through December, are $300 per child under age 6 and $250 per child ages 6 through 17. For example, a family with two school-aged children would receive a total of $6,000. Half of it – or $3,000 – will be distributed in monthly $500 payments this year and the remaining $3,000 will be credited on their tax return next year.  

For 2021 only, more workers without qualifying children can get the earned income tax credit (EITC), a fully refundable tax benefit that helps many low- and moderate-income workers and working families. That’s because the maximum credit is nearly tripled for these taxpayers and is, for the first time, available to younger workers and now has no age limit cap.

The federal government has also significantly expanded the child and dependent care credit, which is money working families can use to pay for dependent care while they work. The changes for 2021 are detailed and highly advantageous to families paying for care so that parents or guardians can work. Find out more about these expanded credits.

Help is available for those who qualify

With so many households newly eligible for higher benefits, and advanced payments on the table, outreach and education are critical. That’s why it’s important organizations working with families ensure they understand how to receive the credits.

For starters, that means filing a 2020 tax return – even if they’re normally not required to do so. The 2020 tax return will allow anyone raising children to receive the advance payments from July through December. They’ll receive the rest of their credit by filing a tax return next year. 

There is a phase-out rate for parents whose adjusted gross income (AGI) is over $75,000 for single filers (or $150,000 who file jointly) and $112,500 for heads of households.

Those who have never filed a tax return, or who need help filing, may qualify for volunteer tax preparation assistance from the Accounting Aid Society.

Those who have never filed a tax return, or who need help filing, may qualify for volunteer tax preparation assistance from the Accounting Aid Society, a nonprofit that assists income-eligible residents of Southeast Michigan with tax preparation and education services.

“We know the impact refunds and credits have in the lives of our clients,” said Hetherwick of the organization that has led the charge as the region’s low-to-moderate income tax assistance expert for nearly 50 years.

“Our clients pay off bills, purchase homes, send kids to college,” he added. “This expansion takes all of those benefits and dials them up to a level that can work to break generational cycles of poverty unlike anything seen by most of us during our lifetimes.”

Accounting Aid Society fills much-needed role

Demand for the agency’s services has never been higher, and the expanded credit will only increase that demand.

“As an unintended consequence of these expansions, demand for ethical, quality tax preparation assistance for low- to moderate-income families is really going to increase,” said Kathleen Aro, Accounting Aid’s president. “But there are some wonderful outreach and education efforts underway.”

Accounting Aid is working with community-based partners across the region to equip them with the knowledge and resources needed to help their clients. A critical part of the agency’s outreach will be ensuring each household is armed with the knowledge and resources they need to file their taxes online – or by any other method they choose.

The nonprofit also is working to serve as many families as possible and will be part of a coordinated outreach and education campaign in the City of Detroit, which is launching soon.

Accounting Aid is also making efforts to educate local and federal officials about the overall impact on their constituents – as well as calling attention to potential challenges. Namely, all parents and guardians raising children must file 2020 and 2021 tax returns.

“We are seeing families who may have never interacted with the tax landscape requiring additional guidance to navigate these systems,” Hetherwick said. “A decimal point in the wrong place could really impact a filing one way or the other, so we are here to support and guide them every step of the way.”

You can help expand local capacity in this work by signing up to volunteer, donating or encouraging your legislators to learn more about these impactful changes. To learn more, visit www.accountingaidsociety.org/CreditExpansion.

Members of the editorial and news staff of the USA TODAY Network were not involved in the creation of this content.
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