Articles & Updates
How the American Rescue Plan Act Transforms the Child Tax Credit
Many Americans anticipated President Biden’s signature of the American Rescue Plan Act on March 11, 2021. The plan includes a $1,400 stimulus check for each dependent claimed on 2019 tax returns and extends weekly unemployment checks until September 2021. But families may not realize the plan's additional benefits which transform the Child Tax Credit in 2021.
Banks in Ohio and across the U.S. want you to know how the changes may affect you.
Review: The 2020 Child Tax Credit
Currently, some families qualify for a $2,000 tax credit for every dependent child younger than 17 with a social security number.
You’re eligible for the 2020 Child Tax Credit if your annual adjusted gross income is below $400,000 if filing jointly or less than $200,000 as a single or head-of-household taxpayer. Individuals with lower incomes may receive up to $1,400 of the credit as a refund but must earn at least $2,500 to qualify.
How has the Child Tax Credit Changed in 2021?
For many families, the Child Tax Credit offers significant benefits in 2021.
- The credit increases to $3,000 for each child starting at age 6 and now extends to 17-year-olds.
- The credit for children under 6 is now $3,600.
- The total amount of the tax credit is refundable.
- The revised credit waives the $2,500 minimum income requirement.
- And notably, half of the credit refund is now available in advance from the IRS through monthly payments between July and December 2021.
- The IRS reimburses the rest of the credit on the 2021 tax return.
To illustrate the magnitude of the tax-free 6-month payout, let’s look at an example for a family with 3 children:
• A 2-year-old, who qualifies for ½ the $3,600 credit or $1,800
• A 10-year-old, eligible for ½ of the $3,000 credit or $1,500
• A 17-year-old, who is also eligible for $1,500
The family in our example will receive $4,800 ($800 per month) of additional income in 2021.
And with a recent Federal Reserve study revealing one-third of U.S households would struggle to pay for a $400 emergency, the funds can help qualifying families regain financial stability.
While the monthly income is currently only planned for 2021, some Congressional members are striving to make the payments permanent.
Who Qualifies for the 2021 Child Tax Credit?
Adjusted gross income determines eligibility for the child tax credit. Head-of-households or single taxpayers with incomes of $75,000 or lower will qualify and joint filers earning $150,000 or less.
If your income is above these limits, you may still qualify for a tax credit for children under 17-years-old if you’re:
• Single or head-of-household with children at home and earn $200,000 or lower
• Married or filing jointly with incomes $400,000 or less
Importantly, higher-income households aren't eligible for monthly advance payments of the credit.
Connect with Your Community Bank
To learn more about the 2021 Child Tax Credit, contact the Consumers National Bank team. We’re ready to answer your questions online, through email, or when you visit one of our local branches throughout Northeastern Ohio.