The $1.9 trillion American Rescue Plan Act has officially made its way through Congress and is set to be signed into law by President Biden before the weekend. And while the third round of stimulus checks is getting most of the headlines, the bill could provide an even bigger windfall to some families thanks to a big boost to the Child Tax Credit.
The 2021 Child Tax Credit
The new legislation expands the Child Tax Credit for 2021 in order to provide additional financial relief for families. In short, the credit is increased from $2,000 per qualifying child to $3,000 for children from ages six to 17 and $3,600 for children under six.
Three other important notes:
- The expanded Child Tax Credit will be fully refundable in 2021, so even taxpayers with no tax liability can claim it.
- This is the first time 17-year-old children will be eligible for the Child Tax Credit. It typically applies to children up to 16 years old.
- In addition to the higher amount, families may get monthly advances on half of their 2021 Child Tax Credit during the second half of the year.
The income qualifications for the standard $2,000 Child Tax Credit remain the same at phase-out thresholds of $200,000 for individuals and $400,000 for married couples filing joint returns.
However, the expanded $3,000 or $3,600 credit is designed to help families of low-to-moderate incomes. Therefore, the added part of the credit will start to phase out at adjusted gross incomes (AGIs) of $75,000 and $150,000 for single and joint filers, respectively, and will go away completely above an AGI of $95,000 for singles and $170,000 for couples.
What we don't know yet
The biggest question mark still surrounding the expanded Child Tax Credit involves the timetable for the advance payments. While the bill provides for monthly advances on the credit starting as early as July, we'll need to wait for the Treasury Department to work out the logistics before anyone will actually start receiving payments.