This is good news for people who don't normally file a tax return.
When the American Rescue Plan was signed into law in mid-March, it did a lot more than just send stimulus checks to people's bank accounts. It also boosted an essential tax credit, setting the stage for millions of families to get a financial boost.
The Child Tax Credit used to be worth a maximum of $2,000, and only $1,400 of it was refundable. That meant if a family claimed the $2,000 credit for a single child and owed no money to the IRS, the most that family could get back in refund form was $1,400.
For the current tax year, though, the Child Tax Credit is fully refundable, and it's also worth a lot more money.
- The credit is increasing to $3,600 for children under the age of 6.
- It will be worth $3,000 for children aged 6 to 17.
- Children who are 18, as well as those aged 19 to 24 who are full-time students, will score their families $500 a piece, whereas the old Child Tax Credit didn't apply to children above the age of 16.
Originally, the IRS had said that to claim the expanded Child Tax Credit, filing a tax return would be necessary. But now, it's making that credit accessible to families who aren't going to be filing a return.
A new portal will open soon
Not everyone is required to file a tax return. Lower earners, in fact, are often exempt from having to file taxes because their wages are lower than what the standard deduction pays (the standard deduction is a portion of earnings that's exempt from taxes).
Of course, the problem with not filing a tax return is missing out on tax credits. But now, the IRS will make it possible for non-filers to benefit from the expanded Child Tax Credit. In June, it plans to launch a portal that will allow non-filers to input their information in order to claim that credit.
If this concept sounds familiar, it's because the IRS has done this before. Back when it was issuing stimulus checks, it gave non-filers an opportunity to register for a payment by inputting their information on a portal as well.
Though lower earners are often entitled to file a tax return for free, many don't take that step because they find the process overwhelming. Opening the Child Tax Credit up to non-filers is an important move on the part of the IRS, because it could result in many more families getting the money they're entitled to.
The IRS will begin issuing monthly checks for the Child Tax Credit as early as July. Those checks will go out for six months and comprise half of the total amount families are eligible for under the credit. The remaining half will be claimed as a refund on 2021 tax returns, which are filed in 2022.
Though the expanded credit is only temporary, the Biden administration is pushing to extend the Child Tax Credit through 2025. That could, in turn, help a lot of families recover from the pandemic and get on more solid financial footing.
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