What you need to know about the American Rescue Plan of 2021

On Behalf of | Apr 2, 2021 | COVID-19

As a result of the COVID-19 pandemic, Congress passed, and the President signed into law, the American Rescue Plan of 2021. This new law provides for increased tax benefits for families for 2021 only.

The law increases the Child Credit from $2000 per child to $3000 per child. This is a significant increase.  Until this year, a child had to be under the age of 17 to qualify. However, for 2021 the age is 18.

Additionally, for children under the age of 6, the credit can be an additional $600 for a total of $3600 per child.

Another significant change is that, for 2021, the credit is refundable for people who don’t have enough income to qualify for the credit. Previously, the credit was not refundable if a person’s income was less than $2500. In 2021, even if you don’t owe any taxes, you will receive the credit. For example, if you were entitled to a credit of $8000, you will receive an $8000 payment from the government even if you owe no taxes.

The phase out for eligibility to claim this credit is changed for 2021.  People eligible for the child credit will receive the payment now rather than having to wait until they file their 2021 taxes in 2022.

There are also phase outs for these increased benefits. The additional $1000 per child (plus $600 per child for children under the age of 6) begin to phase out at $75,000 for a single taxpayer, $112,500 for Head of Household and $150,000 for married filing jointly. The phase out for the existing benefit ($2000 per child) starts phasing out at $200,000 for a single taxpayer and $400,000 for married filing jointly.

These additional benefits should provide some much-needed relief to people who have seen financial difficulty and hardship as a result of COVID-19.