The American Rescue Plan Act, the COVID-19 relief package Joe Biden signed into law in March, made the Democrats’ new and improved child tax credit proposal law. While far from as generous as the financial support for parents in other developed nations, the new child tax credit is much more generous than the credit it replaced and marks the largest expansion of direct cash payments to American parents in recent history.
Here’s what you need to know about the new provision—if you’re eligible, how much you’d be in line to receive, and, crucially, what you need to do to sign up for it.
What do you need to do to sign up?
Because we’re talking about a tax credit, it should come as no surprise that all parents need to do is file their taxes to qualify for it. The amount each parent is due to receive is based on the adjusted gross income on their latest tax filing. And given that the filing deadline is in a few days, they should be filing ASAP anyways.
At the moment, the latest AGI the IRS has for you is from 2019. If your income decreased dramatically in 2020—as it did for millions—then it’s in your interest to provide your new, lower AGI to ensure you receive the full child tax credit. If it increased, then you’ll likely want to make sure the IRS has your updated income so that you don’t receive payments based on your lower income that, once the IRS knows your 2020 AGI, you’ll likely have to pay back.
How much is the new child tax credit worth—and who gets it?
The new child tax credit is more generous than what it replaced, $3,600 per child aged 0 to 5 and $3,000 for older kids, with the amount decreasing on a prorated basis past income limits of $75,000 for single filers, $112,500 for heads of household, and $150,000 for joint filers. The amount of the credit will decrease by $50 for every $1,000 in income a filer makes beyond those limits.
It’s also fully refundable, meaning that taxpayers can benefit from the credit even if they don’t have earned income or owe any income taxes. That means that even the poorest parents in America can fully benefit.
However, if you share custody, only one parent can get the child tax payment.
How will the child tax credit be distributed?
Half of the new child tax credit will be distributed at tax time like the old one was, but the other half will be sent out through monthly payments to parents if they so desire. The IRS will set up a portal for parents to manage their child’s tax credit in the coming months.
The most disappointing aspect of the new credit for parents? It’s only been approved for 2021, and though Joe Biden included an extension to 2025 in his American Families Plan, its passage is far from certain.
So enjoy your brush with a progressive, parent-forward policy—it might not be around much longer.