The expanded child tax credits under President Joe Biden’s American Rescue Plan might be grabbing most of the headlines these days, but do keep in mind that those modest payouts might seem like pocket change when compared to a whopping sum of $16,000.
But that’s exactly the kind of “stimulus” some parents will be getting their hands on when tax arrives next year. As part of Biden’s legislation, individuals who pay out of pocket for child care services can now collect those related expenses in the form of tax credits of $8,000 for one child and up to $16,000 for two or more children.
According to the Internal Revenue Service, in order to qualify for such hefty sums, parents must first meet income thresholds.
To be eligible for the full tax credit, a household’s adjusted gross income must not reach $125,000—and if the income earned surpasses that amount, the credits will phase out at a 50 percent clip. This means that instead of receiving the full $16,000, these parents will still take home $8,000. Also, take note that the rate phases down again to 20 percent for those earning $183,000 and will stay at that level until the income hits $400,000. The tax credits will completely phase out for individuals earning $438,000 or more.
The IRS is also recommending that parents should start preparing right now to claim those tax credits. Make sure to collect and keep all receipts, forms, or documents outlining what was paid to babysitters, nannies, day care, and camps. Related transportation costs may also qualify. Then when tax season rolls around next year, fill out Form 2441 and attach it to the completed tax return.
Keep in mind that these tax credits are entirely different from the expanded child tax credits, which are also from Biden’s stimulus bill. This newest cash windfall—expected to start landing in bank accounts on July 15—will make eligible parents qualify for $3,600 per year for a child under the age of six and up to $3,000 for children ages between six and seventeen. Thus, for a family headed by a couple earning less than $150,000—or an individual making under $75,000—they can now net $250 or $300 payment each month through the end of the year.
White House officials have estimated that households representing more than sixty-five million children—or nearly 90 percent of all children in the country—will receive the payments via direct deposit, paper checks, or prepaid debit cards.
“The American Rescue Plan is delivering critical tax relief to middle class and hard-pressed working families with children,” Biden said in a prepared statement.
“Congress must pass the American Families Plan to ensure that working families will be able to count on this relief for years to come,” he added.
If the nearly $2 trillion American Families Plan is eventually approved by Congress, parents can count on these child tax credit payments for four more years.
Ethen Kim Lieser is a Minneapolis-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.