The IRS’ extended tax day deadline of May 17 has come and passed, and with it, the deadline to file 2020 tax returns in order to take advantage of important COVID-19 relief measures included in the American Rescue Plan has also passed. One particularly important benefit is the expanded child tax credit, for which the IRS needs 2020 returns in order to accurately calculate and send payments. For those who did submit returns looking to take advantage of the credit, here is what to expect with regards to eligibility and payments.
The expanded child tax credit was one provision called for by the American Rescue Plan passed in March. It has been labeled by some as an “unofficial” fourth stimulus payment and, while falling short of the monthly stimulus payments called for by some, does include recurring monthly payments.
The American Rescue Plan made several important changes to the existing child tax credit. Normally, American families can claim a tax credit of up to $2,000 per child under 6 years of age. Under the expanded credit, this number is raised to $3,600 for children under 6 and $3,000 for children older than six. In addition, the credit is now fully refundable, and whereas the credit previously manifested itself as one lump sum when families filed their taxes, it is now paid out in the form of both regular monthly payments as an advance on families’ expected credit for 2021 as well as a refund during the 2021 tax season.
There are qualifying criteria that determine both overall eligibility for the credit as well as the size of the credit available to American families. As mentioned, a credit of $3,600 is available for each child under the age of six, while a $3,000 credit is available for older children; under the expanded system, the smaller credit will now be available for children 17 years of age and under, a change from the previous cap of 16. Partial credits of up to $500 each are available for dependents aged 18-24, and babies born later this year will still qualify for the larger $3,600 credit.
There are income requirements for the credit as well, with the full credit available for individuals who earn up to $75,000 a year and for heads of households and couples filing jointly who earn up to $125,000 and $150,000, respectively. For those with higher incomes, the credit phases out.
Other important qualifiers include the need for eligible children to be both U.S. citizens and have a Social Security number, as well as the need for the child to have lived in the household for at least six months out of the year (exceptions are available for newborns, and for periods of absences due to such things as illnesses, work, and education). Also keep in mind that the credit will not be available to both parents in the case of parents who share joint custody over children.
The first monthly payments for the expanded child tax credit will be sent out starting on July 15.