Expanded Tax Credits For Families
This year, the IRS is offering a variety of expanded tax credits for families. Many individuals who don’t normally need to file tax returns should consider doing so for their 2021 returns, so that they can take advantage of these benefits, which will come with larger refunds for qualifying taxpayers. To learn more about these credits or for help determining your own eligibility for a tax credit, consider reaching out to an experienced Florida tax return preparation lawyer.
Expanded Child Tax Credit
The American Rescue Plan made a number of changes to the Child Tax Credit, which:
- Has been increased from $2,000 per eligible child to $3,000 per child for dependents between the ages of 6 and 17 years old, and $3,600 for children five years of age and under;
- Is now available for 17 year old dependents;
- Is now fully refundable for most families; and
- Was made available to families with little or no income.
In addition to these changes, the IRS also made it possible for qualifying families to collect up to half of their credit amount in advance, in monthly payments during the last six months of 2021. The maximum CTC is available to taxpayers with a modified adjusted gross income of:
- $75,000 or less for single taxpayers;
- $112,000 or less for heads of household; and
- $150,000 for couples who file jointly.
Once these income thresholds have been surpassed, the extra amount above the original $2,000 credit will be reduced by $50 for every $1,000 in modified income. For families who live in the U.S., this credit is fully refundable, which means that taxpayers can qualify for it even if they don’t owe federal income tax. Before this change, the refundable portion of the credit was limited to $1,400. To obtain this credit, eligible taxpayers are required to file a return and complete Schedule 8812.
Child and Dependent Care Credit Increased
In addition to the changes made to the CTC, the American Rescue Plan also raised the amount of the credit for childcare expenses from:
- $3,000 to $8,000 for one qualifying child or dependent; and
- $6,000 to $16,000 for two or more qualifying dependents.
The top credit percentage of qualifying expenses was also raised from 35 percent to 50 percent, which means that the maximum credit for 2021 for a dependent’s qualifying expenses is $4,000 (or $8,000 for two or more dependents). Under the new law, more people also qualify for the updated 50 percent maximum credit rate, as the adjusted gross income level where the credit percentage is reduced was raised from $15,000 to $125,000. Above this amount, the credit percentage is gradually lowered, plateauing at 20 percent for taxpayers who earn more than $183,000 and phasing out above $400,000. The credit is also now fully refundable for the first time.
Do You Qualify for the Expanded Family Tax Credits?
Ronald Cutler, P.A. is not only an experienced tax lawyer and CPA, but is also a Former Special Agent for the FBI. To speak with him about your own tax matter, please call 386-490-9949 and set up a free one-on-one consultation today.