The American Rescue Plan makes the child credit fully refundable for people who live in the United States for more than one half of the year. Before this change, certain low-income people could only get up to $1,400 per child as a refund, instead of the full $2,000 child credit, if their child credit was more than the taxes they otherwise owed. Under the new rules for 2021, people who qualify for a child tax credit can receive the full credit as a refund, even if they have no tax liability. Parents don't need to be employed or otherwise have earnings in order to claim the child credit for 2021. Prior rules limited the credit to families having at least $2,500 of earned income. For 2021, families with no earned income can take the child credit if they meet all the other rules. Philip L. Liberatore, CPA remains committed to providing you with important information that pertains to your success. Learn more here: https://www.liberatorecpa.com/

Just to be clear, this is a 2021, not a 2020 tax credit. And no, not all families with children will get the higher child tax credit, but most will. The enhanced tax break 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. The amount of the credit is reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Note that this phaseout is limited to the $1,000 or $1,600 temporary increased credit for 2021 and not to the $2,000 credit. For example, if a married couple has one child who is four years old, files a joint return, and has an AGI of $160,000 for 2021, they won't get the full $3,600 enhanced credit. Instead, since their AGI is $10,000 above the phase-out threshold for joint filers ($150,000), their credit is reduced by $500 ($50 x 10) – resulting in a final 2021 credit of $3,100. Philip L. Liberatore, CPA remains committed to providing you with important information that pertains to your success. Learn more here: https://www.liberatorecpa.com/

For 2020 tax returns, which are due by May 17th of this year, the child tax credit is worth $2,000 per kid under the age of 17 claimed as a dependent on your return. The child must be related to you and generally live with you for at least six months during the year. He or she must also be a citizen, national or resident alien of the United States and have a Social Security number. You must put the child's name, date of birth and SSN on the return, too. 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. Once you reach the $400,000 or $200,000 AGI threshold, the credit amount is reduced by $50 for each $1,000 (or fraction thereof) of AGI over the applicable threshold amount. Up to $1,400 of the child credit is refundable for some lower-income individuals with children. However, you must also have at least $2,500 of earned income to get a refund. Philip L. Liberatore, CPA remains committed to providing you with important information that pertains to your success. Learn more here: https://www.liberatorecpa.com/

If you qualify for the 2020 unemployment compensation exemption, you may end up getting additional tax breaks. This is because your adjusted gross income (AGI) will be reduced by up to $10,200 (up to $20,400 for married couples filing a joint return. That means you could suddenly be allowed to claim other tax breaks with an AGI-based eligibility cut-off, or claim a larger amount for a tax break with an AGI-based phase-out, such as the earned income tax credit, child tax credit, retirement saver's credit, American Opportunity credit, Lifetime Learning credit, or student loan interest deduction. A reduced AGI could also mean a larger third stimulus check, since the eligibility for and amount of these payments is tied to your 2020 AGI. Philip L. Liberatore, CPA remains committed to providing you with important information that pertains to your success. Learn more here: https://www.liberatorecpa.com/

If you have already filed your 2020 tax return, the IRS will automatically adjust for the new $10,200 tax exemption for unemployment benefits received in 2020. Do not amend your return - the IRS expressly stated that you “Should not file an amended return at this time, be patient as it will be adjusted.”

It’s a little easier if you haven’t filed your 2020 tax return, you can claim the new $10,200 tax break for unemployment benefits on your tax return.

Philip L. Liberatore, CPA remains committed to providing you with important information that pertains to your success. Learn more here: https://www.liberatorecpa.com/