Forget about the $1,400 stimulus checks or the $300 payment for each child. If financially struggling Americans could tap into one particular “stimulus” check, all of those other payments might seem like chump change.
As another important part of President Joe Biden’s $1.9 trillion American Rescue Plan, parents who pay out of pocket for child care services are now eligible to collect those related expenses in the form of tax credits of $8,000 for one child and up to $16,000 for two or more children.
According to guidelines set forth by the Internal Revenue Service, in order to qualify for the full amounts, a family’s adjusted gross income must not exceed $125,000. But if the income earned surpasses that figure, the credits will phase out at a 50 percent clip.
Do keep in mind that the rate phases down again to 20 percent for those earning $183,000 and will stay at that level until income hits $400,000. The credits, though, will completely phase out for those individuals earning $438,000 or more.
In order to streamline the entire process come tax season next year, the IRS is highly recommending that potentially eligible parents need to start preparing now.
The tax agency is advising parents to keep all receipts, forms, or documents outlining what was spent on child care—which could include related transportation costs and day care services. Then during tax season, make sure to complete Form 2441 and attach it to the return before sending it off.
Not Part of CTC Payments
Although this is indeed a children-focused tax credit program, know that it isn’t associated with the recently rolled out expanded child tax credits in any way. Those particular payments, for which two checks have already been disbursed, are also part of Biden’s stimulus bill, now allowing eligible parents to receive as much as $3,600 per year for a child under the age of six and up to $3,000 for children between ages six and seventeen. This means that a $250 or a $300 payment for each child will be direct deposited each month through the end of the year.
New research and polls already are suggesting that these payments are having a sizeable impact on the lives of children, particularly those in low-income households.
According to a new study conducted by the Center on Poverty and Social Policy at Columbia University, the first installment of the credits in July was able to lift roughly three million children out of poverty. That reduction represented a 25 percent fall in the monthly child poverty rate from 15.8 percent to 11.9 percent.
A separate survey conducted by personal finance website MagnifyMoney has helped shed light on how the credits are being spent. The top uses for the funds include groceries with 45 percent, school supplies 44 percent, savings 38 percent, household bills 36 percent, child care costs or school tuition 36 percent, and new clothes or shoes 33 percent.
Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.