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$3000 new child tax credit: how to calculate

Congress is pushing forward with the American Rescue Plan Act 2021 that would benefit many Americans with children through an enhanced Child Tax Credit.

Congress is pushing forward with the American Rescue Plan Act 2021 that would benefit many American with children through an enhanced Child Tax Credit.
Mark BrownAFP

The House approved their version of the $1.9 trillion covid-19 relief package based on President Joe Biden's American Rescue Plan laid out in January. The sweeping legislation includes measures to help struggling American families, stabilize the economy, ramp up the vaccination effort and covid-19 testing and $1,400 stimulus checks.

One of the provisions in the bill that will be of great interest to families with children is the enhanced Child Tax Credit. If the coronavirus relief package is approved in the Senate and signed into law, families could see a child tax credit of up to $3,600 per child under 6 and $3,000 per child under 18 for 2021. This is just one of three tax provisions that families can take advantage of including the Child and Dependent Care Credit and the Earned Income Tax Credit.

Who is eligible for the $3,600/$3,000 per child tax credit?

The provision increases the number of households that qualify for the child tax credit. The current earnings floor whereby a family must earn a minimum of $2,500 per year to even qualify for the child tax credit was removed. The proposal also makes the enhanced child credit fully refundable instead of a maximum refund of $1,400, so families will receive the credit even if they paid less in taxes than the total of the credit.

The bill would set a cap to receive the maximum amount at $75,000 annual adjusted gross income (AGI) for individual taxpayers, $150,000 for joint filers and $112,500 for head of household. Above that threshold the benefit would phase out incrementally. After the phase out point for the enhanced child tax credit, the current child tax credit of $2,000 would apply with the size of the benefit starting to phase out for individual taxpayers with an annual AGI over $200,000, for joint filers AGI over $400,000.

Eligibility to claim the enhanced Child Tax Credit

  • under 18 on 31 December, 2021 (*the current age limit is under 17)
  • be a U.S. citizen, resident, or national, and
  • have a Social Security number which you must provide on your tax return.
  • live with you for over half the year
  • provide less than half of his or her own support

A qualifying child can be any of the following: your son, daughter, stepchild, adopted child, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them—for example, your grandchild, niece, or nephew.

How much can I receive per child with the enhanced child tax credit?

For families under the income threshold, they would receive the full $3,600 per child under 6 and $3,000 per child under 18. However, the American Rescue Plan Act calls for half the amount to be paid out in direct payments, potentially monthly, starting in July. The remainder, $1,800/$1,500, would be available to families as a rebate when they file their 2021 income-tax filing in 2022.

So a family, who file jointly and earn less than $150,000 a year, with two children who are five and 17 in 2021, would see $550 in monthly direct payments from July to December and could then claim a $3,300 child tax credit on their 2021 income-tax filing. However, in the bill Secretary Yellen will have the discretion to decide if the payments are paid at longer intervals stating “such payments shall be made on the basis of the shortest interval which the Secretary determines is administratively feasible.”

Families can also chose to claim the credit in a lump sum when they file their 2021 tax return in 2022. For more complicated calculations you can use the 2021 Child Tax Credit Calculator at Kiplinger.

Beneficiaries can change their status

The legislation is also calling for the creation of an online portal where beneficiaries could change their status as their financial or family situation changes. Since the payments would go out in advance based on a taxpayer's previous income-tax filing there are worries that taxpayers would be penalized after the fact.

To alleviate this worry, the legislation creates a “safe harbor” provision, whereby parents who are mistakenly sent the benefit will not be penalized if their adjusted gross income doesn’t exceed 200 percent of the threshold. Should their family or economic situation change making them ineligible they would not be made to pay back the money at the end of the year.


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