Do You Have Children? You May Qualify for Monthly Payments from the IRS!
If you have children under the age of 18, you may begin to receive monthly payments from the IRS under the expanded child tax credit from the American Rescue Plan.
For the next 12 months, qualifying parents will receive monthly checks up to $300 for each child ages zero through five and $250 for each child ages six through seventeen.
The American Rescue Plan Act of March 2021 is designed to assist in the United States’ recovery from the economic impact of the COVID-19 pandemic. A significant part of the plan includes the broadening of the Child Tax Credit to include more families, increase the financial benefits the credit provides, and to get these benefits into the hands of the eligible taxpayers quickly through the use of Advanced Monthly Payments in 2021.
Most families do not need to do anything to get their advance payment. Normally, the IRS will calculate the payment amount based on your 2020 tax return. Eligible families will receive advance payments, either by direct deposit or check.
The American Rescue Plan raised the maximum Child Tax Credit in 2021 to $3,600 per child for qualifying children under the age of 6 and to $3,000 per child for qualifying children ages 6 through 17. Before 2021, the credit was worth up to $2,000 per eligible child, and children 17 years and older were not eligible for the credit.
The 7 Requirements for the 2021 Child Tax Credit:
1) Age test – To qualify, a child must have been under age 18 at the end of the year. Increased credit amounts are available for children under age 6 if certain family income tests are met.
2) Relationship test – The child must be your own child, a stepchild, or a foster child placed with you by a court or authorized agency. An adopted child is always treated as your own child. (“An adopted child” includes a child lawfully placed with you for legal adoption, even if that adoption is not final by the end of the tax year.) You can also claim your brother or sister, stepbrother, stepsister. And you can claim descendants of any of these qualifying people—such as your nieces, nephews and grandchildren—if they meet all the other tests.
3) Support test – To qualify, the child cannot have provided more than half of his or her own financial support during the tax year.
4) Dependent test – You must claim the child as a dependent on your tax return. Bear in mind that in order for you to claim a child as a dependent, he or she must:
- be your child (or adoptive or foster child), sibling, niece, nephew or grandchild;
- be under age 19, or under age 24 and a full-time student for at least five months of the year; or be permanently disabled, regardless of age;
- have lived with you for more than half the year; and
- have provided no more than half his or her own support for the year.
5) Citizenship test – The child must be a U.S. citizen, a U.S. national or a U.S. resident alien. (For tax purposes, the term “U.S. national” refers to individuals who were born in American Samoa or in the Commonwealth of the Northern Mariana Islands.)
6) Residence test – The child must have lived with you for more than half of the tax year for which you claim the credit. There are important exceptions, however:
- A child who was born (or died) during the tax year is considered to have lived with you for the entire year.
- Temporary absences by you or the child for special circumstances, such as school, vacation, business, medical care, military services or detention in a juvenile facility, are counted as time the child lived with you.
- There are also some exceptions to the residency test for children of divorced or separated parents. For details, see the instructions for Form 1040.
7) Family income test
Income Limitation on the 2021 Child Tax Credit
The 2021 Child Tax Credit is reduced if your 2021 modified adjusted gross income (MAGI) is above certain amounts which are determined by your tax-filing status.
- Qualifying families with incomes less than $75,000 for single, $112,500 for head of household, or $150,000 for joint returns are eligible for the temporarily increased credit of $3,600 for children under 6 and $3,000 for children under 18. Above these income amounts, the credit is reduced by $50 for each $1,000 over these limits.
- For families with MAGI greater than the amounts eligible for the increased credit, the phaseout of the credit begins with $200,000 in income ($400,000 for married filing jointly) and the credit amount is $2,000 for all children under 18 at the end of the tax year.
- Your greatest available credit is based on the above method that provides you with the largest benefit.
According to Columbia University’s Center on Poverty and Social Policy, the expanded child tax credit can cut child poverty nearly in half nationwide by providing payments to help parents with day-to-day expenses like gas, health care, groceries, diapers, and more.
Children cannot succeed in school unless they have enough to eat, a consistent place to live, and medical care when they’re sick or hurt. A child born in Connecticut should be able to reach their full potential regardless of their family’s income.
Over 60% of children in Southwest Connecticut will benefit from the expanded tax credit, that’s over 102,000 children. 8,000 children in our community will be lifted out of poverty, including 2,600 children under the age of six.
If you or someone you know might benefit from the recent changes to the Child Tax Credit, whereby parents can receive payments monthly, please forward this information along to them.