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ECONOMIC NEWS

What did Kamala Harris say about extending Child Tax Credit?

On Tuesday, US Vice President Kamala Harris spoke about the need for families to be clear on enhanced tax provisions that could see them get larger refunds.

VP Kamala Harris provides update on Child Tax Credit
LEAH MILLISREUTERS

On Tuesday, US Vice President Kamala Harris spoke to the American people about the importance of a) being aware of the Child Tax Credit conditions and b) to take action to ensure that they did not lose out. Here you can listen to her words as she spoke at a press conference in front of the gathered media.

VP Harris on the Child Tax Credit

To assist you with what you need to know and do, we have summarised the details of the key aspects of the American Rescue Plan, which, besides approving a third round of stimulus checks to every eligible American for up to $1,400, enhanced and expanded several tax credits for the 2021 fiscal year. Households with children could especially benefit from these changes resulting in a larger tax refund when they file this year.

A few of the tax credits the legislation enhanced include the Child and Dependent Care Credit, the Earned Income Tax Credit and the Child Tax Credit, which also came with an advance payment scheme in 2021. Households that welcomed a new member to the family last year could potentially see another $1,400 stimulus check. But you will need to file a 2021 tax return in order to take advantage of the changes.

In related news:

2021 Recovery Rebate Credit for third stimulus check

Parents that welcomed a new member, or members, to their family in 2021 might be able to claim a $1,400 third Economic Impact Payment, better known as the third round of stimulus checks, for each of the new additions. On 2021 tax returns you can claim the amount that your newborn or adopted child would have received had the IRS known about their existence when the $1,400 payments were sent out.

Taxpayers with an adjusted gross income (AGI) below a certain threshold qualified for the full amount. Those income limits were as follows: up to $75,000 if single, $112,500 as head of household or $150,000 if married and filing jointly.

But in the third round, the corresponding amount tapered off faster than the previous two rounds of stimulus checks. Taxpayers did not qualify for even a partial payment if their AGI was at or above  $80,000 if single, $120,000 as head of household or $160,000 if married and filing jointly.

You will need to use the 2021 Recovery Rebate Credit to claim those funds. If you failed to receive the first two rounds of stimulus payments, you will need to file a 1040 form for 2020 to claim the 2020 Recovery Rebate Credit.

2021 Child Tax Credit

Eligible parents that didn’t opt out should have already received monthly payments from the enhanced Child Tax Credit for the 2021 fiscal year. But those payments only represented half of the total credit they could be eligible for. The remaining portion of the credit for each child under age 17 can be claimed on 2021 tax returns.

Not everyone chose to receive the advance payments on the credit and some families that aren’t required to file tax returns never got signed up. These taxpayers will be able to claim the full amount they are due when they file this spring.

In either situation, taxpayers with children could be looking at a healthy tax refund in 2022 with just the 2021 Child Tax Credit. Eligible parents can claim up to $3,600 for every child under the age of six and up to $3,000 per child six to 17 years old at the end of 2021.

Those that received advance payments will need to subtract the amount that they received last year from the remaining amount that they qualify for. The IRS has sent letters to recipients, but taxpayers can also check how much they received using your IRS Online Account.

In order to be eligible for the full amount of the 2021 Child Tax Credit, a filer’s AGI had to be less than $75,000 if single, $112,500 as head of household or $150,000 if married and filing jointly. Above those thresholds the credit gradually reduced to $2,000, the amount taxpayers could claim before the increase for 2021 only. That amount phases out when a taxpayer’s AGI exceeds $400,000 for those who file married and filing jointly and $200,000 for all other filing statuses.

In both cases, the credit is reduced by $50 for each $1,000 increment in AGI above the thresholds, or fraction thereof. So, for example, if your AGI is $1,000.01 above the threshold, the amount of the credit you can claim goes down $100.

Child and Dependent Care Credit

For parents that incur expenses to have their child looked after so that they can go to work, look for work or study, may be able to get up to $8,000 knocked off their 2021 tax bill. Even better, the American Rescue Plan made the credit fully refundable in 2021. So, if you owe less in taxes than the amount of the credit you can claim, you’ll see a larger tax refund this year.

One hitch, you need to have kept all your receipts for the expenses you wish to claim on the credit. Also the math on this credit is a little tricky and there are rules for eligibility.

Individuals or households with earnings up to $125,000 will be able to claim 50 percent of up to $8,000 paid toward having their one child or dependent cared for, so that would equate to a refundable credit of up to $4,000. If you have two or more children the amount of expenses you can claim doubles to $16,000, making the maximum refundable credit $8,000.

Earned Income Tax Credit

The American Rescue Plan expanded eligibility for the Earned Income Tax Credit (EITC) widening the age range for people to claim the credit, lowering the minimum age to 19 and removing the age 65 ceiling. Those changes are only for the 2021 fiscal year though.

The EITC is targeted at household with low to moderate incomes. The tax credit is fully refundable, meaning you can qualify for it even if you don’t owe federal income taxes and the corresponding amount will go towards any refund you have coming. The amount that you can claim depends on your income and how many children or dependents you claim on your tax return.