New Child Tax Credit and Recovery Rebate: Don't Miss Your Chance!
Tax Day is April 15th … usually. But this year, that deadline has been extended until May 17, 2021. If you or your clients do not normally file tax returns because they are not required to due to limited earnings, this may be the year to do so! This is so important to show that you are eligible to receive the federal stimulus payments and expanded child tax credits signed into law on March 11, 2021, as part of the American Rescue Plan.
There have been three Economic Impact Payments, informally known as “stimulus checks,” issued in 2020-2021. The most recent payment provides $1,400 for individuals, and $1,400 for each of their dependents (any age). In December, the stimulus amount was $600.00 for an individual and $600 for their dependents under age 17. And back in March, 2020, the stimulus amount was $1,200 for individuals and $500 for dependents under age 17.
Who should have received a payment directly? If you filed a tax return for the 2018 or 2019 tax years, filled out a “non-filer form” with the IRS by November 2020, or received Social Security Retirement, Disability, SSI, Railroad, or Veteran’s benefits, you should have received the first two stimulus payments directly. The IRS and Treasury have announced that current stimulus payments will be sent electronically on April 7th, 2021. (See: https://www.cnet.com/personal-finance/ssdi-ssi-and-third-stimulus-checks-when-and-how-your-1400-will-arrive-eligibility-rules/.) You can check with the IRS directly at https://www.irs.gov/coronavirus/get-my-payment.
Did not file a tax return? If you did not file a tax return, or did not file as a “non-filer” by the deadline, you can file your tax return now. You can claim a “Recovery Rebate Credit” on your tax form. There are free tax filing forms available; you can find out if you are eligible for electronic filing at: https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free.
Income decreased in 2020? Number of dependents changed? The stimulus payments sent out were likely based upon your 2018 or 2019 income tax filing. If your income decreased in 2020, you may have been eligible for one or more of the payments. You may not have received payments for a dependent if you did not file a tax return or they were not a dependent when the tax return was filed.
CHILD TAX CREDIT
The American Rescue Plan, passed on March 11, 2021, expands the child tax credit. This is a critically important program, and expansion will help significantly to reduce the number of children living in poverty during this difficult economic time. It is estimated that the expansion of the child tax credit and Earned Income Tax Credit will help lift 5.5 million children above the poverty line, and over 1 million to at least half the poverty line. (See: https://www.cbpp.org/research/federal-tax/american-rescue-plan-act-includes-critical-expansions-of-child-tax-credit-and.)
What are the changes in the child tax credit? The child tax credit has been limited to taxpayers with some earnings, but this benefit will expand to include those with no employment income. The amount of the child tax credit will be $3,600 for children from birth to age 5. Children ages 6-17 will be $3,000.
How will the payment be made? For families struggling with enough money to pay their basic living expenses, they can be paid half the credit starting in July 2021. That would mean payments of $300 per month for children 0-5 years old and $250 per month for children 6-17 years old. Many families don't think of themselves as tax filers because they don't have earnings, so reaching out to lower income families who do not usually file a tax return is very important.
Are there changes for those living in poverty who do not have children? Yes, the Earned Income Tax Credit has been expanded to include those with $21,000 in annual income, increased from $15,000. The maximum amount has been raised from by almost $1,000 dollars, to about $1,500.