Will Child Tax Credit continue this year?


The American Rescue Plan's Child Tax Credit provides the largest Child Tax Credit in history, as well as historic relief to the greatest number of working families ever – and as of July 15th, most families are automatically receiving monthly payments of $250 or $300 per child, with no action required. All families will benefit from the Child Tax Credit.

The American Rescue Plan raised the age restriction from 16 to 17 and boosted the Kid Tax Credit from $2,000 to $3,000 per child for children over the age of six and from $2,000 to $3,600 for children under the age of six. If a couple earns up to $150,000 or a family with a single parent earns up to $112,500, they will be eligible for the entire credit (also called Head of Household).

For each qualified child under the age of 17, the Child Tax Credit program can decrease your federal tax liability by $1,000.

Beginning in the summer of 2021, significant improvements to the Child Tax Benefit will allow many families to receive early installments of the credit. Beginning July 15, 2021, the Internal Revenue Service (IRS) will pay half of the entire credit amount in advance monthly payments. When you file your 2021 income tax return, you'll be able to claim the other half. Only the tax year 2021 is affected by these changes.

Nearly all working families will receive significant tax relief, ranging from $3,000 to $3,600 per child.

The American Rescue Plan's Child Tax Credit gives the highest child tax credit in history, as well as historic relief to the greatest number of working families ever.

$3,000 per child 6-17 years old

$3,600 per child under 6 years old

All working families will get the full credit if they make up to $150,000 for a couple or $112,500 for a family with a single parent (also called Head of Household)

Almost all working families have automatic monthly payments:

You will automatically receive this tax relief if you submitted tax returns for 2019 or 2020, or if you signed up to receive a stimulus check from the Internal Revenue Service. There is no need to register or take any action on your part.

Getting a head start on your tax relief: Normally, tax relief for the year only comes when you file your taxes the following year, no matter how urgently you need it now. Most households received their money in July this year.

With monthly payments beginning in July, people will get the Child Tax Credit in monthly installments for the first time. Families will receive $250 per month for each child aged 6 to 17 years old and $300 per month for each child aged below 6.

The 80 percent of people who receive their refunds from the IRS via direct deposit will continue to receive them on the 15th of every month until the end of 2021.

Those who do not have direct deposits will receive their money in the mail at the same time.

Who qualifies for the Child Tax Credit?

The child you are claiming the credit for must be under the age of 17 to be eligible for this benefit program.

1)    Age requirement: A youngster must have been under the age of 18 at the end of the year to be eligible. If specific family income standards are met, increased credit amounts are available for children under the age of six.

2)    Relationship test - The child must be your own, a stepchild, or a foster child who has been placed with you by a court or recognized agency. Adopted children are always treated as if they were your own. ("An adopted child" refers to a child who has been lawfully placed with you for legal adoption, even if the adoption has not yet been finalized by the end of the tax year.) You can also claim your brother or sister, as well as your stepsister or step-brother. And if the descendants of any of these qualifying people—such as your nieces, nephews, and grandchildren—meet all the other criteria, you can claim them.

3)    The child must have contributed more than half of his or her own financial support throughout the tax year to qualify.

4) Dependent test: You must claim the youngster on your tax return as a dependent. Keep in mind that in order for you to claim a child as a dependant, he or she must meet the following requirements:

- be a kid (or adopted or foster child), a sibling, a niece or nephew, or a grandchild;

- be under the age of 19 or under the age of 24 and enrolled in school full-time for at least five months of the year; or be chronically crippled, regardless of age;

- have spent more than half of the year with you; and

- have contributed less than half of his or her own funds for the year

5) The child must be a U.S. citizen, a U.S. national, or a U.S. resident alien to pass the citizenship test. (The term "US national" refers to anyone born in American Samoa or the Commonwealth of the Northern Mariana Islands for tax reasons.)

6) Residence test: The child must have lived with you for at least half of the tax year in which the credit is claimed. However, there are a few notable exceptions:

A child who was born (or died) during the tax year is assumed to have spent the entire year with you.

Temporary absences from school, vacation, business, medical care, military duty, or imprisonment in a juvenile facility by you or the child are counted as the time the child resided with you.

For children of divorced or separated parents, there are certain exceptions to the residence rule.

7) Income test for the family

Child Tax Credit Income Limitation in 2021

If your 2021 modified adjusted gross income (MAGI) exceeds specific thresholds defined by your tax-filing status, the Child Tax Credit will be decreased.

What is the process for applying for the Child Tax Credit?

This program does not require any software. However, you must follow the instructions on the Schedule 8812 (Form 1040 or 1040A, Child Tax Credit) page when filing your taxes.

The IRS will decide if you qualify based on the information you submitted and will enroll you in advance payments in 2021. To get advance payments, you do not need to take any additional steps. If you aren't obliged to file a tax return and haven't already provided the IRS with your information, you will need to provide some basic information in order to earn the Child Tax Credit. By November 15, 2021, use the non-filer sign-up tool.

Child Tax Credit Extension

The discontinuation of advance child tax payments in December had a huge impact on poverty in the United States. According to a Columbia University study, 3.4 million more children were poor in February 2022 than in December 2021.

When the monthly child tax credit payments were handed out from July to December 2021, the number of children living in poverty reduced by 40%. Families will receive the final half of the expanded tax credit in their tax refunds this year. The credit will then revert to its nonrefundable original value of $2,000 per kid.

President Biden is pleading with Congress to extend the payments "so that no one has to raise a family in poverty." The White House recently backed up its point with data illustrating the impact of the child tax credit on American families by state. According to the Biden administration, expanding credit would benefit not only individual families but also the economy and employment.

According to new research from the National Bureau of Economic Research, the benefits of expanding the child tax credit would well outweigh the cost. It forecasts that expanding the program would cost $97 billion and produce $982 billion in social benefits.

Biden's Build Back Better plan, which would have included a child tax credit extension, appears to be gone. However, Biden is pressing for specific elements of the economic program to be adopted by Congress, which would include prolonging the boosted payments.

Some senators have expressed interest in enacting a plan that does not include a work requirement. To pass a credit extension in the Senate, though, Manchin would have to be on board.

Is there a new payment for the child tax credit on the way?

There have been Facebook posts circulating that show a Google response about Child Tax Credit payments. There is a portion that has been highlighted:

From July to December, these sums were paid on the 15th of the month, with the final Child Tax Credit payment scheduled for April 2022.

The Facebook user says at the bottom of the post, "Watch for that April payout, it's coming."

The comment makes it appear as though you'll be getting another payment round, but this isn't the case.

"There will be no more Advanced Child Tax Credit payments." Normally, you would receive your Child Tax Credit when you filed your taxes; but, this year is different. "You got half of it early and the other half after you filed your tax return," Liberty Tax Services' Ryan Dodson explained.

The point here is that the "payment" in April of 2022 is credited to you when you file your taxes and claim the credit, which often results in a refund.

Let me pause there for a moment. Because you received some of your refunds in the form of Advanced Child Tax payments in July, August, September, October, November, and December, your return will most likely be less this year.

Remember, Tax Day isn't on April 15, 2022; it's on April 18, 2022, the Monday following Easter. You don't want to miss the deadline, especially if you're behind on payments.

"If you owe $4,000 and decide not to file because you don't have the money, that will be $5,000 by September, so even if you can't pay, the best thing you can do is file that tax return anyway," Dodson said.

Effects of Increasing the Child Tax Credit:

-         It has the potential to help millions of children escape poverty

According to Columbia University research, when the child tax credit expired in December, an additional 3.7 million children fell into poverty. According to Columbia University's latest report, the number of children living in poverty fell marginally in February, from 17 percent to 16.7 percent. The February percentage is still a significant improvement above the December figure of 12.1%.

According to Elaine Maag, principal research associate at the Urban Institute, one out of every seven children lives in poverty. This equates to approximately 13 million youngsters. According to Maag, extending the enhanced child tax credit payments and making them completely refundable could reduce child poverty by 40%.

-         The additional funds may be able to assist counteract the effects of inflation

In February, immediately after the monthly child tax benefit program stopped, inflation climbed by 7.9% year over year. The price rises on groceries and gas can be frightening for families who formerly received up to $300 per child per month and now receive nothing.

If the child tax credit payments are extended, however, those families will be less cash-strapped, which will assist to counteract inflation, according to Maag. They will be less affected by price hikes if they are in a better financial position.

If it isn't extended, those households may run out of food and have trouble paying their rent and utilities.

-         It has the potential to increase jobs

Because many families cannot afford child care, one parent must stay at home to care for their children. However, with the extra money coming in each month, parents may be able to afford a babysitter or child care center, allowing both parents to work. According to Maag, this might lead to an increase in employment across the United States.

On the other side, if there is more money to support their family, some secondary home earners may work less or not at all because they won't have to pay for child care.

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