What the Expanded Child Tax Credit Means for You
The New Economic Aid Also Includes $1,400 Stimulus Payments and Extends Unemployment Benefits
Tips for using the stimulus and Child Tax Credit payments
- If you owe back rent, utilities, or mortgage payments, MAKE THOSE FIRST. This is especially important now for anyone who is delinquent in rent, because the federal eviction moratorium expires on March 31.
- Pay your 2020 taxes (if you owe them).
- Pay down your credit card debt or loans.
- Start an emergency fund.
- Support local businesses and restaurants in the 24:1 Community.
- Put money aside for long-term needs like education or retirement.
The latest federal COVID aid package passed the U.S. Congress and was signed by President Joe Biden in mid-March.
You’ve probably already heard about the new round of stimulus payments—and may have already received yours.
But there’s another important part of the act that will benefit families within the 24:1 Community: the Child Tax Credit. It allows households with children to claim up to $3,600 for younger children or $3,000 for children age 6 or older (regardless of earned income) on their 2021 taxes.
Payments from the Child Tax Credit will be split: Half will be paid through your 2021 tax refund (filed in 2022) and the other half will be paid out directly in the second half of this year, from July to December 2021.
What’s in the American Rescue Plan Act of 2021?
The ARP includes $1.9 trillion to aid in economic relief. The three major tax-related benefits in the American Rescue Plan are a third round of direct stimulus payments, extended unemployment insurance benefits (and a $10,200 unemployment income tax exemption for 2020), and an expansion of the Child Tax Credit.
- $1,400 stimulus payments
The ARP provides a third round of stimulus payments up to $1,400 for adults and their dependents. The payments begin to phase out at $75,000 for single filers, $112,500 for head of household filers, and $150,000 for joint filers—meaning about 89 percent of U.S. filers will receive a payment.
- Unemployment benefits
The ARP extends the three federal unemployment insurance expansions (first created by the CARES Act through Sept. 6, 2021. The total number of weeks of benefits available to individuals who cannot return to work safely increases from 50 to 79. The federal unemployment supplement stays at its current level of $300 a week after March 14 and before Sept. 6.
A new provision exempts $10,200 of unemployment benefits received in 2020 from income taxes. The exclusion is retroactive—so it applies to unemployment insurance benefits received last year.
What to do if you haven’t filed taxes yet:
If you collected unemployment benefits in 2020 and haven’t yet filed last year’s return, don’t file anything yet. The IRS will send out more guidance soon.
If you already filed your 2020 taxes:
Don’t file an amended return or take any other action yet. The IRS will give you instructions on next steps.
- Expanded Child Tax Credit
The ARP greatly expands the Child Tax Credit. Households with children can claim up to $3,600 for younger children or $3,000 for children age 6 or older on their 2021 return—regardless of earned income. (Some limits do apply for adjusted gross income at very high income levels.)
Unlike the previous Child Tax Credit, the new expansion will be fully refundable for 2021.
There are many details still to come about how this will work, but families should expect to start getting payments in July.
What to do next:
Even if you don’t owe taxes for 2020, you are still eligible and encouraged to file a return.
This will ensure you are in the system to receive the Child Tax Credit payments starting in July. If your income, marital status, or number of children changes during 2021, be sure to update it online with the IRS. This way you’ll be paid the correct amount from July to December.