A Child Tax Credit (CTC) is a tax credit which granted to parents with dependent children given by various countries. In a bid to help taxpayers in supporting their families; American Rescue Plan Act of 2021 the said credit has been greatly expanded.
Families are eligible to claim the full CTC, if their earning is less than $400,000 per year. On the other hand, families making less than £42,000 per year can only claim the tax credit.
Reportedly, the new rules are expected to reduce the number of children in America living in poverty by 45 percent.
The CTC minimizes the taxpayers' tax liability on a dollar-for-dollar basis. Recent legislation raises the maximum annual credit in 2020 from $2,000 per child (under 17) to $3,000 per child (under 18) or $ 3,600 (for children under 6) in 2021. As compare to 2020 where the credit was partially refundable, the 2021 CTC will be fully refundable and above that the 2021 Child Tax Credit will be distributed to eligible taxpayers in monthly advance payments, effective July 15, 2021, and parents will not be liable for the taxes they receive.
It is suggested that during preparations for 2020, the eligible taxpayers should calculate and compare children's tax credit amounts based on their earned income for both 2019 and 2020 to know which year provides the most benefits.
The refundable part of the 2020 credit is known as additional child tax credit which takes into account the taxpayer's annual earnings. Because many people had lower incomes in 2020 due to pandemic, a special "check in" rule allows taxpayers to base their 2020 earnings on the 2020 credit base. The taxpayers should be aware of one important change for 2021 such as a significant immediate benefit in the form of advance payments.
How it works
The operation of the Child Tax Credit will vary for 2020 income taxes. The Children's Tax Credit 2020 will work differently for income taxes - which are due on May 17, 2021, the new 2020 tax filing date - and for 2021 taxes. The 2021 changes to the US bailout are for 2021 only. The following year - if other legislation has not made additional changes - the credit will return to the applicable rules of 2020, with some inflation adjustments.
Presently
US President Joe Biden called on Congress to expand the "Child Tax Credit Program" because the program has the potential to reduce child poverty in the US.
The program will be extended beyond its December end date. Biden, initially planned to extend this credit for four years with the aim of making it permanent. Making the child tax credit program permanent was one of the five main aspects of the budget agreement.
According to IRS estimates, $15 billion will be distributed to approximately 39 million families and 65 million children. Eligible families can extend the credit for 2021, adding $1,000 to the existing $2,000 child tax credit for each child ages 6 to 17 and $1,600 for a child age 5 and younger.
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