New COVID-19 Relief Law Expands Child Tax Credit & Provides More Tax Relief

March 31, 2021, 10:28 AM HST
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The American Rescue Plan Act signed March 11 by President Joe Biden includes new Child Tax Credits and more tax relief for individuals. Screen shot.

US Sen. Brian Schatz (D-HI) released a resource guide to help Hawai‘i families navigate the new tax benefits –including the expanded Child Tax Credit — available under the American Rescue Plan Act.

“The newly expanded Child Tax Credit will put more money in the pockets of hundreds of thousands of Hawai‘i families who need a little more help to make it through this tough time,” said Sen. Schatz, a member of the Senate Appropriations Committee. “I encourage every working family to visit our website to see if you qualify for this new tax benefit.”

Under the expanded Child Tax Credit, eligible families can get up to $3,600 per child under age 6 and $3,000 per child up to age 17. These expanded benefits phase out at $150,000 for married taxpayers filing jointly, $112,500 for heads of households and $75,000 for individual filers. 

Researchers at Columbia University’s Center on Poverty and Social Policy project that these changes will reduce child poverty by 45 percent. It also will benefit more than 300,000 children in Hawai‘i who do not currently qualify for the full benefit.

The American Rescue Plan Act also enhanced the Earned Income Tax Credit by making the tax credit larger and available to more working adults without children. Additionally, the relief law expanded the tax credit that helps offset some of the costs of childcare, the Children and Dependent Care Credit, by making it fully available to families earning less than $125,000 and boosting the size of the credit.

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The $1.9 trillion American Rescue Plan Act is the second largest rescue package in American history and was signed into law on March 11.

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The full resource guide, including more details on eligibility, is available here. It will be continuously updated as the IRS releases more information.

TAX RELIEF FOR INDIVIDUALS

Child Tax Credit (CTC)

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Under the American Rescue Plan, the Child Tax Credit is enhanced in the following ways for 2021:

  • The maximum credit is increased from $2,000 to $3,000, with an additional $600 for each child under the age of six, and extends the full credit to 17-year-old children. 
  • The increased amount phases out at $150,000 for married taxpayers filing jointly, $112,500 for heads of households and $75,000 for individual filers.
  • The CTC is fully refundable for 2021.  As a result, if the maximum CTC would be greater than your tax liability, you will receive the excess from the IRS.
  • The IRS will send out funds on a periodic basis (ideally monthly) starting this July until December 2021, instead of making families wait until tax season to claim the credit.  Families should receive about half of the benefit of the CTC by December, and then they claim the rest on their 2021 tax return.
  • The CTC is extended to families in Puerto Rico and other US territories.

Earned Income Tax Credit (EITC)

The American Rescue Plan expands the EITC for taxpayers with no qualifying children for 2021 in the following ways:

  • Lowers the minimum age to claim the EITC without children from 25 to 19 (for full-time college students who are not foster youth or homeless youth, the minimum age is 24) and eliminated the upper age limit so that people age 65 and over are eligible.
  • Increases the benefit from $543 to $1,502.
  • Increases the credit amount and phase-out percentage from 7.65 to 15.3 percent.
  • Increases the income at which the maximum credit amount is reached to $9,820, and increases the income at which the phase-out begins to $11,610 for non-joint filers.
  • Repeals a provision of law in order to allow a taxpayer to claim the childless EITC if they cannot claim the EITC for otherwise qualifying children because their children do not have valid Social Security numbers.
  • Allows married but separated individuals to be treated as not married for the purpose of the EITC if a joint return is not filed.  This applies to taxpayers who live with a qualifying child for more than half of the year but either do not live with their spouse or have a separation decree or agreement in place.
  • Allows taxpayers to use their 2019 earned income for their 2021 earned income for the purposes of claiming their EITC, if their 2021 earned income was less than their 2019 earned income.

Children and Dependent Care Credit (CDCTC)

The American Rescue Plan makes enhancements to the Children and Dependent Care credit:

  • For 2021, the CDCTC is fully refundable. 
  • The credit is also fully available to families making less than $125,000—up from $15,000—and partially available to families earning between $125,000 and $400,000. 
  • The credit is increased from 35% of $3,000 for one child ($6,000 for two or more) to 50% of $8,000 for one child ($16,000 for two or more).  At $125,000, the credit rate begins to phase out and plateaus at 20%, before phasing out completely for families making $500,000. 
  • The exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 for 2021.

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