The American Rescue Plan Act worth $1.9 trillion has a lot of moving parts. Officially signed by President Biden on March 11, the act includes $1,400 stimulus checks for every qualifying American, but it goes further this time to include an updated version of the child tax credit.
What are the details of the new child tax credit, including income limits for filed taxes?
Details on the child tax credit for the 2021 season
Whether you're still working on your 2020 taxes or you're already thinking about the 2021 tax season, you should know about an update to the child tax credit. In the past, you could receive a tax credit of up to $2,000 for any qualifying dependent aged 16 or younger. This setup also included a $500 credit for non-child dependents.
However, it looks like Biden has upped the ante on the child tax credit situation. Now, parents with children ages 6–17 will receive $3,000 per dependent, plus $3,600 for any child under the age of six.
The new child tax credit is fully refundable, which is heartening news. A refundable tax credit means you can get the full value in your refund if your credit exceeds taxes owed (formerly, the refund was limited to $1,400). This could change the game for some families by the time tax returns for 2021 start to roll out. In fact, it could elevate some families above the poverty threshold.
Income limits to know about
Not everyone will receive access to the child tax credit, but the number of eligible families has drastically increased with the revised act. The Center on Budget and Policy Priorities says that approximately 27 million children will benefit from this.
Like the stimulus check arrangement, the max income for individuals to receive the full credit is $75,000. For couples, the limit is $150,000. Those who exceed the income limit can still get some credit, but it will be reduced by $50 for every additional $1,000 in gross income earned.
For example, if an individual earns $85,000 (meaning they're $10,000 over the limit for the full credit value), they will receive $500 less than the full amount, or $2,500 for school-aged children and $3,100 for young children.
With this calculation in mind, the limit to receive anything on top of the old child tax credit is $95,000 for individuals and $170,000 for couples filing jointly. However, even those with a higher gross income will still be eligible for the initial child tax credit worth $2,000. The income limit for this rate is $200,000 for individuals and $400,000 for couples.
The new child tax credit prioritizes low and middle-income families
The existing child tax credit has a rather expansive income limit that favors high incomes as much as low ones. A salary of $200,000 is comfortable for pretty much anyone, but this updated credit that applies only to people making $75,000 or less is more geared toward those with incomes that are representative of the working class in America.