Explaining the Increased Child Tax Credit

We’re sure you’ve read or heard something recently about the expansion of the federal Child Tax Credit, arguably the most significant piece of tax-related legislation in several years. What makes this new law particularly relevant is its widespread impact on American families. While many tax changes only affect relatively small portions of the American people, the expanded Child Tax Credit will have a major impact on many American families. With that in mind, we feel it is vitally important for us to explain how this new law will affect your family’s overall financial plan.

Are you eligible? How much will you receive?

The eligibility requirements are what make this new law particularly relevant. Unlike most federal tax deductions, credits, or other assistance programs, this new tax credit is available to many high-income families who usually earn far more annual income to qualify and low-income families who might not meet minimum earned income requirements.

Most families will receive the full amount: $3,600 for each child under age 6 and $3,000 for each child ages 6 to 17. To get money to families sooner, the IRS is sending families half of their 2021 Child Tax Credit as monthly payments of $300 per child under age 6 and $250 per child between the ages of 6 and 17.

This amount may vary by income. These people qualify for the full Child Tax Credit:

  • Married couples with income under $150,000
  • Families with a single parent (also called Head of Household) with income under $112,500
  • Everyone else with income under $75,000

These people qualify for at least $2,000 of Child Tax Credit, which comes out to $166 per child each month:

  • Married couples with income under $400,000
  • Families with a single parent (also called Head of Household) with income under $200,000
  • Everyone else with income under $200,000

Families with even higher incomes may receive smaller amounts or no credit at all.

Key features to consider

If you’ve filed tax returns for 2019 or 2020, or if you signed up to receive a stimulus check from the Internal Revenue Service, you will get this tax relief automatically. You do not need to sign up or take any action.

There are no work requirements, or minimum earned income requirements

There are no limits on the number of children a parent(s) can have to qualify for the credit

The monthly payments are credits to reduce your 2021 federal income tax liability and are not considered income—even for those who have no federal liability to reduce

The Child Tax Credit is not permanent and only available for the tax year of 2021. Political observers generally expect this law to be extended beyond the end of 2021, but, barring any changes, the law will expire at the end of 2021

For many American families, including many who are not accustomed to receiving federal assistance, this new law is very impactful towards their overall financial plan. Reach out to us at Multnomah Group with any further questions you may have.

Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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