The big headline coming out of the American Rescue Plan Act, which President Biden signed into law on March 11, was the $1,400 stimulus check for eligible Americans. But there’s a lot more packed into the bill, including a lot of provisions that are designed to benefit parents.
Here’s what parents should know about the latest coronavirus relief plan.
YOU COULD GET $1,400 PER CHILD IN STIMULUS PAYMENTS
In addition to the $1,400 you may receive as an individual, you could receive up to $1,400 for each qualifying child. Single filers making less than $75,000, heads of household making less than $112,500 and married couples making less than $150,000 will qualify for the full payment. That means a family of four with qualifying income could receive a total of $5,600 in stimulus payments.
Beyond those income thresholds, however, the payments start to phase out, and at a faster pace than in previous stimulus rounds. An individual who makes $80,000, a head of household who makes $120,000 and a married couple making $160,000 would no longer qualify for any stimulus payment, including for your children.
THE CHILD TAX CREDIT IS GOING UP
For tax year 2021, the child tax credit is being temporarily expanded. Normally, the tax credit is $2,000 per child; this year it will increase to $3,000 per child age 17 and under. If you have any children under the age of 6, you may receive another $600, for a total of $3,600 per child under age 6 by the end of the year.
To qualify for the full increased credit (the additional $1,000 or $1,600), you must earn less than $75,000 as a single filer, $150,000 if you’re married and file jointly, and $112,500 for heads of household. Beyond that, the increased credit will start to phase out by $5 for every $1,000 beyond the income threshold. (This calculator can help you estimate your credit amount.)
You can still qualify for the usual $2,000 credit if you earn less than $200,000 as a single filer or $400,000 as a married joint filer (with a phaseout thereafter). And if you have dependents who are not qualifying children, you may still be eligible for a $500 family tax credit per dependent.
YOU MAY GET PART OF YOUR CHILD TAX CREDIT AS ADVANCE PAYMENTS
Typically, you receive the child tax credit when you file your tax returns. But in 2021, you could receive up to half of your child tax credit as direct payments of up to $300 per child, from July through December. You would receive any remaining credit on your 2021 tax return.
The credit is also fully refundable in 2021. Previously, if the credit exceeded the amount of taxes you paid, the most you could receive as a refund was $1,400. (The $500 family tax credit per dependent remains nonrefundable.)
THE CHILD AND DEPENDENT CARE CREDIT IS GOING UP
If you pay others to help care for your children, you could get a credit of up to 50 percent (up from the usual 35 percent) of your eligible expenses, up to a total of $4,000 for one qualifying dependent and up to $8,000 for two or more. The percentage of the credit you can take phases down to 20 percent once you have a household income between $125,000 to $400,000, and then phases down even further beyond that. The credit applies to children under age 13 or qualifying adults who require care.
DEPENDENT CARE FSA LIMITS ARE GOING UP
Contributions to dependent care flexible savings accounts (FSAs) are up significantly for 2021, to $10,500 for individuals and married couples (up from $5,000); and to $5,250 for married filing separately (up from $2,500). Keep in mind that you can’t use both the child and dependent care credit and a dependent care FSA on the same expenses.
This publication is not intended as legal or tax advice. Consult with a tax professional for tax advice that is specific to your situation.