Credits, deductions, stimulus checks, taxable income, depreciations – all words that can induce an immediate glaze in the eyes of the uninitiated. Tax season can be a confusing and frustrating time but luckily BlueSky is here to help!
With the recent passing of the Coronavirus Aid, Relief, and Economic Security Act (also known as the C.A.R.E.S Act), we have been receiving a lot of questions regarding the Child Tax Credit (CTC). We wanted to take this opportunity to both explain what the CTC is and how the new iteration of it will affect you.
What is the Child Tax Credit?
The Child Tax Credit (CTC) is a credit the government makes available for individuals that claim a child as a dependent. This partially refundable credit reduces the taxpayer’s liability on a dollar for dollar basis. For 2020, the maximum amount for the credit is $2000 for each child under age 17 claimed in the tax return. The maximum amount refundable was $1400 per child. What does that mean? If someone’s tax liability were $0, they would get $1400 in their pocket.
How did the CARES Act Affect CTC?
The coronavirus stimulus package that President Joe Biden signed into law in March 2020 will increase the amount of the Child Tax Credit for 2021. The new amount for the credit will be $3600 for children under age 6 and $3000 for children between ages 6 and 17.
Not every taxpayer qualifies for this new CTC. Only taxpayers with Modified Adjusted Gross Income (MAGI) up to $75000 ($150000 for married couples) will qualify for the new amount. Taxpayers with a higher MAGI could get a reduced amount. With the new credit, taxpayers will have the option to receive the tax credit as advanced payments before filing their 2021 tax return.
According to Forbes “The monthly payments will start in July and continue until the end of the year. Since this only amounts to half of a year’s credit, taxpayers can claim the remaining amount on their tax return next year when filing their tax return for 2021.” The new Child Tax Credit is a temporary increase that will only apply to the 2021 tax year unless a new law is passed to make it permanent.