CHILD TAX CREDIT
$8,000 stimulus check: who gets it, how to apply and when will it be sent out?
The IRS sent out the last round of direct monthly payments in December, but could a further child tax credit payment be coming your way in 2022?
The Internal Revenue Service began the distribution of the sixth round of direct payments for the expanded Child Tax Credit in the middle of December, with concerned families around the United States realising that it was the final batch provided for by the American Rescue Plan (ARP). Now, however, there is a potential for some of those parents to receive a payment worth up to $8,000 in 2022.
What is the $8,000 stimulus payment?
For parents that have an adjusted gross income of less than $125,000 and who have at least two children not older than 13 years of age, the extra money may be made available. Known as the child and dependent tax credit, its purpose is to assist families in providing care and support for their children by offsetting other costs.
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Congress passed the American Rescue Package back in March and the $1.9 trillion relief package expanded the decades-old Child Tax Credit programme to include direct monthly payments for the first time. However only one year of funding was ensured and, unless Congress is able to pass an extension by 28 December, the monthly payments will end with December's instalment.
“The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school,” announced the IRS.
The payment in the new year, which could be up to $8,000, can be used to cover expenses including babysitters, transportation, housekeepers, day camps or daycare, as well as programs before and after school. The money can also be used to care for a dependent with a disability.
As a potentially refundable payment it is also possible that taxes on it will not be required to be paid. Note also that the money will not automatically be issued, eligible households will have to apply for it using Form 2441. Further information can be found at IRS' dedicated page.
Child Tax Credit and tax filing
For months Congress has been debating the future of President Biden’s Build Back Better bill, a legislative package which includes a one-year extension for the improved Child Tax Credit. But regardless of whether that extension materialises, Child Tax Credit recipients will have a credit to claim when they file their taxes in 2022.
Since July the IRS has been sending families monthly checks worth $300 for children five or younger, and $250 for those aged between six and 17. The July-December monthly payments have constituted the first six months of provision, but the ARP provided a full year of the boosted programme.
The remaining six months of the expanded Child Tax Credit will come as a single end-of-year tax credit, to be claimed when filing taxes in 2022. This means that parents still have a tax credit worth up to $1,800 per child to reduce their 2021 tax bill or increase the size of their tax refund.
How do I claim the Child Tax Credit when filing in 2022?
In early 2022 you will be required to file your tax returns for the previous year and you will get the chance to claim the remainder of the expanded Child Tax Credit. The IRS has confirmed that it will send out Letter 6419 to Child Tax Credit recipients in January, outlining what remaining credit they have.
The letter will advise you on how to ensure that you get your full Child Tax Credit entitlement when you file, as well as the size of the payment that you can expect. You should keep the letter and may need to refer to it when filing taxes.
You should also bear in mind that the advanced Child Tax Credit payments you received in 2021 are not considered income, meaning that the payments will not be taxed for anyone who is eligible.
The only exception is if your 2021 income exceeded the original estimates and you rise above the income threshold for eligibility. In this instance, you may have to pay back some of the money received from the Child Tax Credit.