by Angelica Leicht | Published on Sept. 23, 2021
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Are you a parent with an older teenager or young adult child that you still financially support? You could be getting an extra $500 in tax credit money soon. Here's why.
Millions of parents across the nation have been on the receiving end of the new advance Child Tax Credit payments over the last few months. These early tax credit payments were part of President Joe Biden's American Rescue Plan, which was signed into law in March to help the nation recover from the effects of the pandemic. And, so far, the money has had a pretty big impact on low- to moderate-income households across the nation.
While only three of the monthly Child Tax Credit payments have been issued by the IRS thus far, studies have shown that a substantial decrease in food insecurity, housing insecurity, and other financial strain occurs for many households after each round -- and the payments have been beneficial for minority families in particular. These monthly payments are slated to land in bank accounts and mailboxes through December, which will make it much easier for families in need to stretch their budgets through the end of the year.
The benefits we've seen from the Child Tax Credit payments have been so substantial that they've even led some Democratic lawmakers to push for making the Child Tax Credit payments permanent. Whether or not that happens remains to be seen, but while we wait, there is some other good financial news to report. Some parents will soon be getting an extra cash boost worth $500 thanks to another tax credit payment, and the money could make a big difference to millions of households. Wondering whether that $500 boost is coming your way? Here's what you need to know.
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The Child Tax Credit payments have been essential in helping families who were struggling financially due to the pandemic, but as with all of the recent tax credit and stimulus payments, there were limitations to who could qualify for the money. One of the main downsides to the Child Tax Credit is that it excluded parents with children older than 17 who were still living at home.
That kept millions of households with older teenagers out of the monthly tax credit payment equation. The good news is that a new tax credit payment -- called the Credit for Other Dependents -- addresses the issue with a one-time tax credit for children and dependents who qualify, including children over the age of 17 who still live at home.
According to the IRS, the maximum amount a parent can receive for the Credit for Other Dependents tax credit is $500 per dependent. These payments will be issued as part of your 2021 tax return, and can be claimed if the dependent:
The dependent will also need to be a U.S. citizen or a national or resident alien. And, if you want to claim a dependent between the ages of 19 and 24 years old, they must be attending college full-time to qualify for the $500. To claim the Credit for Other Dependents tax credit, the dependent also cannot be used to claim the Child Tax Credit, per the IRS.
As with the other tax credit and stimulus payments, there is an income cap to qualify. The Credit for Other Dependents payments will begin to phase out when a single taxpayer's income is more than $200,000, or when a married couple filing jointly has more than $400,000 in annual income.
That's a significantly higher income threshold than we saw with the Child Tax Credit or stimulus payments. The higher income restrictions for the Credit for Other Dependents tax credit will make it a lot easier for families to qualify for the money.
It also makes it possible for parents of older teenagers who are still supporting their children financially to get a break at tax time. This is important because the Child Tax Credit restrictions do not allow parents to claim the tax credit money for dependents who will turn 18 during the current calendar year.
And, while you will have to meet the income and qualification guidelines to take advantage of the extra $500 at tax time, the good news is that you can claim this credit on top of the Child Tax Credit and other tax credits. The only restrictions are that you meet the income guidelines for those credits and have younger children who qualify for the Child Tax Credit money.
While you won't be able to claim this extra tax credit money until you file your 2021 taxes, you can determine whether you're eligible to do so next year by using the IRS's Interactive Tax Assistant. You can use this tool to find out whether you're eligible for not only the Credit for Other Dependents, but also for the Child Tax Credit payments.
Note that you'll need to have your filing status on hand when you log in, as well as the dependent's date of birth and information on whether you can claim that person as a dependent.
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