While many are rightfully focusing on the $1,400 stimulus payments that were guaranteed to most Americans with the recent passage of the $1.9 trillion American Rescue Act, there are various other provisions and parts to the bill beyond the direct payments that are worth highlighting. In a recent post, we took a closer look at how it will boost healthcare access — especially for low-income Americans — as well as how student loan forgiveness is now not considered taxable income. But one of the new provisions that has the potential to make another significant impact on American families is the expansion and enhancement of the child tax care credit.
Currently, eligible dependents are eligible for an income tax credit of up to $2,000 per child. But when families go to file their taxes for the 2021 fiscal year, they’ll be eligible for up to $3,600 per child.
In this post, we’ll take a closer look at what this enhancement means, whether it has staying power and how much extra you can expect to earn come tax time a year from now. Here’s a look:
What Will the Child Tax Credit Benefit Be?
Specifically, most American families can expect to see a child tax credit of $3,000 per child for any child dependents age 6 through 17 and $3,600 for any child dependent under the age of 6. Similar to the stimulus payments, these credits are income-based and do phase out for those who earn higher wages. If you were eligible for the $1,400 stimulus payments, there’s a good chance that you would qualify for the full child tax credit benefit. And even if you aren’t eligible for the full or any of the enhanced child tax credit benefit, know that you’re still likely eligible for the $2,000 one.
Another nice thing about this enhancement is that the IRS is expected to provide $250 advances per month on this tax credit beginning in July for school-aged children to help parents make ends meet before tax season can arrive. If you’d prefer to receive the tax credit in a lump sum when you file your 2021 taxes, that’s an option too. This enhancement is expected to significantly reduce child poverty in America.
It’s worth noting that tax credits and tax deductions are not the same things. Tax deductions decrease the total that you’re on the hook for paying in taxes, while tax credits are either dollar-for-dollar increases to your refund or decreases to what you owe.
Will This Last Beyond 2021?
While many Democratic senators are pushing to make this enhancement permanent, the fact is that this is only for the 2021 tax year right now. While there is a chance that this enhancement could be made permanent, that will be a debate for another day on Capitol Hill. Chances are that if this provision is able to do what Congress expects it to do in terms of the child poverty rate, there will be a significant push to make it permanent.