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Everything You Need to Know About The Child Tax Credit

Child Income Tax Credit
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According to a 2015 report by the United States Department of Agriculture, the average middle-income family will spend $12,890 per child per year for housing, food, healthcare, education, childcare, and other expenses.

Thankfully, the United States Federal Government is willing to carry some of that burden for qualifying families.

The Child Tax Credit offsets some child raising costs with a tax deduction. Qualifying families can claim an income tax reduction equal to $3,600 a year for each child under six and $3,000 for each child ages 6 to 17. This program has raised tens of millions of American children out of poverty.

This article will explain the Child Tax Credit, its history and likely future, current eligibility requirements, and how to claim it.

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What is the Child Tax Credit?

The Child Tax Credit is a federal program that allows qualifying parents to claim an income tax deduction for some of the expenses incurred by raising their children. 

The money received by qualifying parents can be received either as monthly checks from the IRS or be added to their tax refund at the end of each fiscal year.

History of the Child Tax Credit

The Preamble of the Constitution of the United States of America declares that one of the purposes of the Federal Government is to “promote general welfare” of the American people. 

And this is a promise that the Federal Government has rarely lived up to. The Child Tax Credit is one attempt by the Federal Government to live up to the promises made to its people.

In the wake of the Dot-com Bubble Burst two years earlier, the first version of the Child Tax Credit (CTC) was passed as part of the Taxpayer Relief Act of 1997. When the act went into effect in 1998, it granted a yearly tax credit of $400 to American families. 

The credit was increased to $500 in 1999 and $1,000 per child in 2001. The availability of the CTC was expanded after the Bush Recession in 2008 and 2009 and doubled by the Trump tax cuts to $2,000 per child per year effective 2018. 

The CTC’s most recent change was a temporary expansion and increase in the American Rescue Plan Act of 2021.

The Child Tax Credit in 2021

As part of the American Rescue Plan Act of 2021, the Biden Administration enacted the largest increase and eligibility expansion in the history of the Child Tax Credit. 

The ARPA instituted a temporary increase in the CTC from $2,000 per child per year to $3,600 for children under age six and $3,000 for children age 6 to 17. 

The ARPA also expanded the credit to Puerto Rico, the American Virgin Islands, Guam, American Samoa, and the Northern Mariana Islands for the first time.

In addition to increasing and expanding the  Child Tax Credit, the ARPA also instituted a system of monthly advance payments for eligible families. Families already receiving the CTC are automatically enrolled to receive monthly checks from the IRS to help pay for their children’s needs. 

The expansion is currently set to expire on December 31st, 2021.

Future of the Child Tax Credit

As things sit in early September 2021, the expansion to the Child Tax Credit in the American Rescue Plan Act is set to expire at the end of this year. 

The credit is also set to drop from $2000 to $1000 per child per year in 2025. Under current law, parents should not rely on the CTC in the future. But there is some hope.

The proposed human infrastructure-focused budget reconciliation bill currently being discussed by the Democratic Party-controlled Congress, which makes up the majority of President Joe Biden’s platform, is supposed to make the expansion of the CTC permanent. 

Unfortunately, the U.S. Chamber of Commerce, the Democratic senators most sympathetic to its positions, and the entire Republican Party, are currently against the “Budget Bill,” and its chances of passing appear minimal. 

The “all-powerful” Senate Parliamentarian is also likely to kill the bill.

The future of the Child Tax Credit and the millions of American children it keeps out of poverty is in the hands of President Joe Biden and the Democratic Party.

Who is Eligible for the Child Tax Credit?

As it is a federal program, determining eligibility for the Child Tax Credit is a bit complicated. After all, we wouldn’t want to help anyone who isn’t desperate for it.

The eligibility requirements for the Child Tax Credit Advance Payments as of early September 2021 are in the table below. The IRS also has an online assistant to determine one’s eligibility.

Party

Parent
Eligibility Requirement

Must have a qualifying child.

Must have a primary address in one of the 50 U.S. States or Washington D.C. The “primary address” is defined as the address where the taxpayer spends more than one half of the year.

The primary address can be any of the following:

  • House
  • Apartment
  • Mobile Home
  • Shelter
  • Temporary lodging (hotel, motel, military base, etc.)
  • Other location, as long as the government can find you.
The primary address does not have to be set in the same location for the entire fiscal year. A permanent address is not required.

Furthermore, you do not have to stay at this location for the entire year. Travel is allowed.
Party

Child
Eligibility Requirement

The relationship to the taxpayer receiving the CTC must be one of the following:

  • Child (daughter, son, stepchild, eligible foster child)
  • Sibling (brother, sister, stepbrother, stepsister, half-brother, half-sister)
  • Descendent of any of the above (niece, nephew, grandchild)

The child does not provide more than half of their own financial support during 2021.

The child lives with the filing taxpayer for more than half of the year. Exceptions can be found here.

The child is the filing taxpayer’s dependent. An official IRS explanation of who a dependent is can be found here.

The child does not file a joint return with a spouse for tax year 2021 or files it only to claim a refund of withheld income tax or estimated tax paid.

The child is either a:


Must have a valid social security card.

The Child Tax Credit Advance Payments are means-tested. The table below shows the phaseouts. The phaseouts are determined based on the parent/taxpayer adjusted gross income (AGI).

An explanation of how to calculate your AGI from Nerdwallet can be found here.

 Parent Income Thresholds

 Full Payment

 Single   Parent

 $75,000

 Head of   Household

 $112, 500

 Joint Filing   Married   Couple

 $150,000

 First Phaseout

 This phaseout will not reduce total   payment below $2,000 per child per   year.

 Single   Parent

 Over $75,000

 Under   $200,000

 Total payment reduced by $50 per every $1,000 (or fraction of $1,000)   over $75,000 AGI.

 Head of   Household

 Over $112,500

 Under   $200,000

 Total payment reduced by $50 per every $1,000 (or fraction of $1,000)   over $112,500 AGI.

 Joint Filing   Married   Couple

 Over $150,000

 Under   $400,000

 Total payment reduced by $50 per every $1,000 (or fraction of $1,000)   over $150,000 AGI.

 Second Phaseout

 This phaseout will reduce total   payment below $2,000 per child per   year, and may disqualify high-income  parents.

 Single   Parent

 Over $200,000

 Continued reduction of $50 per every $1000 (or fraction of $1,000) over   $200,000 AGI. 

 Head of   Household

 Over $200,000

 Joint Filing   Married   Couple

 Over $400,000

 Continued reduction of $50 per every $1000 (or fraction of $1,000) over   $400,000 AGI. 

The Child Tax Credit and Advance Payments for the CTC are graduated according to the child’s age. For filing purposes, the IRS uses what the child’s age will be on December 31st, 2021.

 Child   Age

 Maximum   Monthly   Payment

 Maximum   Yearly   Payment

 Under   age six

 $250

 $3,000

 Ages   six to   17

 $300

 $3,600

How to Get The Child Tax Credit

Under the Child Tax Credit expansion included in the America Rescue Plan Act of 2021, all eligible families are automatically enrolled to receive half of their total allocation in monthly checks. 

Parents can unenroll in the advanced payment program and receive their remaining tax credit in the 2022 tax refund.

Eligible families with children under age six will receive a maximum of $300 per month per child. Eligible families with children ages 6 to 17 will receive a maximum of $250 per month per child.

The table below shows the advanced payment schedule, including the un-enrollment deadlines and dates the money will be dispatched.

Month

Un-enrollment Deadline

Payment Date

Max Payment (children under 6)

Max Payment (children 6 to 17)

September

08/30/2021

09/15/2021

$300

$250

October

10/04/2021

10/15/2021

$300

$250

November

11/01/2021

11/15/2021

$300

$250

December

11/29/2021

12/15/2021

$300

$250

Remainder (April 2022)

N/A

TBD

$1,800

$1,500

If eligible parents paid taxes in either 2020 or 2019 (if you have not yet filed your 2020 taxes), the IRS already has their banking information. The money will be directly deposited into the account. 

Otherwise, eligible parents will receive a check in the mail. Due to ongoing management issues in the U.S. Postal Service, physical checks may be delayed.

IRS online tools to check one’s availability and manage payments can be found here. Information on unenrolling from the advance payments can be found here.

Low-income parents who have not had to submit an income tax refund in the past can enroll in the CTC here.

Summary

The Child Tax Credit is one of the better aid programs that the United States Federal Government offers its citizens and residents. And the American Rescue Plan Act made it better than ever, at least for a while.

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