AMERICAN RESCUE PLAN PART TWO
American rescue plan part two. Another large section of the American Rescue Plan involves the child tax credit, is has been expanded. The section that expands this is section 24, child tax credit. It does so in several way and provides that taxpayers can receive the credit in advance of filing a return. The act makes the credit fully refundable for 2021 and makes 17 year olds eligible as qualifying children. The act increases the amount of the credit to $3000 per child ($3600 for children under 6). The increased credit amount phases out for taxpayers with incomes over $150,000 for married taxpayers filing jointly, $112500 for heads of household, and $75,000 for others, reducing the expanded portion of the credit by $50 each for each $1000 of income over those limits. The IRS is directed to estimate taxpayers child credit amounts and pay monthly in advance one twelfth of the annual estimated amount. Payments will run from July through December 2021. The IRS must set up an online portal to allow taxpayers to opt out of advance payments or provide information that would be relevant to modifying the amount. American rescue plan part two.
The taxpayer in general will have to reconcile the advance payment amount with the actual credit amount on next year’s return and increase taxable income by the excess of the advance payment amount over the actual credit allowed. But taxpayers whose modified AGI for the tax year does not exceed 200% of the applicable income threshold ($60,000 for married taxpayers filing jointly) will have the increase for an excess advance payment reduced by a safe harbor amount of $2000 per child. With additional money, taxpayers may not need a Tax Resolution Company.
Earned Income Credit. The act also makes several changes to the Section 32 earned income tax credit. It introduces special rules for individuals with no children. For 2021, the applicable minimum age is decreased to 19, except for students (24) and qualified former foster youth or homeless youth(18). The maximum is eliminated. The credit’s phaseout percentage is increased to 15.3% and the phaseout age is eliminated. The credit would be allowed for certain separated spouses.