What you need to know, right now, about the expanded child credits
Families with children must file a return to receive benefit payments starting this month
Almost 9 million Americans became poor during the COVID-19 pandemic — among them, 1.5 million children under the age of 17. But for many of these families — as well as almost 90% of all American families — there is help.
A significant expansion of the child tax credit, part of the American Rescue Plan, will help to increase income for low-wage earners and families with young children through refundable tax credits and advance payments. Now, there is no minimum income requirement and adults without children have an increased credit amount. In addition, the eligibility age range has been expanded to include workers ages 19-24 and those 65 and older, too.
Here's what families should know about the new changes to the child tax credit –– including when they can expect to receive advance payments.
Expansion includes a variety of credits
The Rescue Plan includes an expansion of a complete package of credits that can get cash to you and your family, including the expanded Earned Income Tax Credit (EITC) and Child Care and Dependent Credit (CDTC).
Earned Income Tax Credit (EITC)
Unlike the expanded Child Tax Credit, families will need to have earnings from work to qualify for the expanded Earned Income Tax Credit. However, the one-year expansion still provides significant benefits for workers, especially those without children, who were previously left out of the credit. Here are the important changes:
- Credit amount increased for childless adults: The maximum credit amount for workers without children claimed as dependents has increased from about $542 to around $1,500.
- Income limit raised for workers without children: from $15,980 to $21,920 .
- Eligibility age range expanded: Workers ages 19-24 and workers 65 and older can qualify for the expanded EITC.
Child Care and Dependent Credit (CDTC).
The Child Care and Dependent Tax Credit helps working people cover the costs of caring for a child or dependent with disabilities. The changes to the credit will provide families with a tax credit of 50% of up to $8,000 in costs per child/disabled dependent, and $16,000 for two or more.
If you qualify for the Earned Income Tax Credit or Child Care and Dependent Credit you’ll need to file a 2021 tax return next tax season (in 2022). Even though the 2022 tax season is many months away, it’s important to be aware of the credits now so you’ll be ready to claim them when the time comes.
What is the expansion of the child tax credit?
The American Rescue Plan of 2021 includes a one-year expansion of the child tax credit, which increases the tax credit amount per child and includes advance payments between July and December 2021. Families will receive the remainder of the credit when they file their taxes next year.
There is no minimum income requirement, although the credit begins to phase out for single filers who make $75,000 or more, married couples who make $150,000 or more and heads of households who make $112,500 or more.
How much is the credit, and how is it paid?
Families can receive $3,000 for each qualifying child ages 6-17, and $3,600 for each qualifying child under age 6. Before the credit was expanded, the maximum amount was $2,000 and was limited to age 16 and under.
Eligible families will begin to receive the credit starting in July in monthly payments of $250-$300 per child, and they will receive the rest of the credit in 2022 when they file their tax return. Families also can opt to receive the full amount of the credit in one lump sum when they file their taxes in 2022.
Who is eligible for the credit?
The child tax credit applies to parents, grandparents, siblings, foster parents, stepparents and others who are raising children, even if you have no earned income.
Children must live with the recipient of the credit in the United States for more than half the year (does not need to be consecutive) and must be considered a dependent for tax-filing purposes.
Parents who share custody are not both eligible for the credit.
How do you receive the credit?
Families who filed a 2019 or 2020 tax return, or who submitted their information to the IRS to receive an economic impact payment, are automatically enrolled in monthly payments, known as ‘advance payments.’
Unless they opted out from advance payments, families will begin to receive monthly payments on July 15. Families who did not opt out by the June 28 deadline, but do not want to receive monthly payments, will receive the first payment on July 15 but can opt out for future payments through the IRS' child tax credit update portal.
Some families don't file tax returns because they don't earn enough, but if they are raising children, they likely will qualify for the child tax credit. Even if they don’t normally file a tax return, they can still qualify for monthly payments if they file a return before October 2021.
How do you file an income tax return?
For those who have never filed an income tax return or who aren't sure where to start, the Accounting Aid Society can help. The nonprofit provides volunteer tax preparation assistance for people in Southeast Michigan with low-to-moderate incomes. To qualify, people must make $57,000 or less annually.
Appointments with the Accounting Aid Society can be made online at accountingaidsociety.org/taxpayers or by calling 313-556-1920.
Families can also learn about preparing their own taxes online for free by visiting accountingaidsociety.org/taxpayers.
To learn more about the expanded child tax credit and how to get help filing your taxes, visit accountingaidsociety.org/CreditExpansion.