- Earned Income Tax Credit
- Child Tax Credit
- Child and Dependent Care Tax Credit
- Small Business Relief
2020 Child Tax Credit
2021 Child Tax Credit
- Worth $2,000 per child under the age of 17 as long as you claim them as a dependent and lives with you for at least six months
- 17-year-old dependents can qualify, and the credit is increased to $3,000 per child ($3,600 per child under age 6) for many families
- The credit begins to phase out if your adjusted gross income (AGI) is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return.
- The credit begins to phase out at AGIs of $75,000 on single returns, $112,500 on head-of-household returns, and $150,000 on joint returns. Families who aren’t eligible for the higher child credit for 2021 would still claim the regular credit of $2,000 per child, less the amount of any monthly payments they got, subject to the $400,000/$200,000 AGI threshold limits.
- Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these individuals must also have earned income of at least $2,500 to get a refund.
- The credit is fully refundable, and the $2,500 earnings floor is removed.
- Half of the credit can be received in advance by having the IRS send periodic payments to families from July 2021 to December 2021
Completely separate from The Child Tax Credit is the Child and Dependent Care Tax Credit (CDCTC). This tax credit is intended to help working families pay expenses for the care of children, adult dependents, or an incapacitated spouse. Below is an overview of the key changes:
Qualifying dependents for the CDCTC include the following:
- Children who are 12 or younger at the end of the tax year
- Dependent adult family members or spouses who are not able to care for themselves due to mental or physical impairments, unless they had gross income of $4,150 or more
- No changes to the qualification requirements
- The maximum Applicable Percentage is 35%. That percentage, however, is quickly reduced to as little as 20%, phasing down as the taxpayer’s AGI exceeds $15,000 (regardless of filing status).
- Under the American Rescue Plan, the maximum Applicable Percentage is increased to 50%. Furthermore, the 50% Applicable Percentage does not begin to be phased out until the taxpayer’s AGI exceeds $125,000 (regardless of filing status)
- The maximum amount of care expenses to which you can apply the credit is $3,000 if you have one dependent and $6,000 if you have more than one dependent. That means the largest possible credit is $1,050 with one dependent and $2,100 with multiple.
- Under the American Rescue Plan, the maximum amount of expenses eligible to be used in the calculation of the Child and Dependent Care Tax Credit is more than doubled in 2021, to $8,000 of expenses when a taxpayer has one qualifying child and $16,000 of expenses when a taxpayer has two or more qualifying children
At Client First Capital, we understand that the changes and eligibility in the American Rescue Plan Act of 2021 can be confusing and that is why we are here to help. It is not only important for us to work with you to understand the potential tax implications for you and your family, but to also come up with a strategy to grow and protect your finances during the pandemic and beyond.