The Impact of Child Tax Credits on Your Finances

When it comes to filing your taxes, understanding the terminology and various provisions can be a daunting task, especially as policies continuously change. One provision that may significantly impact your finances is the Child Tax Credit. As a nationwide tax relief company, Brightside Tax Relief is here to help you understand how these child tax credits can affect your financial landscape.

What Is the Child Tax Credit?

In simplest terms, the Child Tax Credit (CTC) is a non-refundable tax credit available for parents with qualifying dependents under the age of 17. A significant part of American tax legislation since 1997, it helps to alleviate the financial burdens associated with raising children.

How Does the Child Tax Credit Work?

Child Tax Credits essentially allow a reduction in your tax liability. For every child that meets the eligibility requirements, tax filers may decrease their tax bill on a dollar-for-dollar basis. Simply put, if you owe $5,000 in taxes and qualify for a $2,000 credit, your tax bill is reduced to $3,000.

However, it’s crucial to note that these are non-refundable credits, meaning they won’t exceed your total income tax liability. In other words, if your tax bill is already zero, you cannot receive a refund for any leftover credit.

Recent Changes to the Child Tax Credit

The American Rescue Plan Act (ARPA) passed in March 2021 temporarily expanded the Child Tax Credit, offering substantial financial relief for families. Key changes include:

Increased Credit Amount

The Child Tax Credit has been temporarily increased to a maximum of $3,600 per child aged under six and $3,000 per child aged between six and 17.

Expanded Age Eligibility

The ARPA expanded the age limit for children qualifying for the tax credit. Previously, children aged 17 and above were not eligible for the Child Tax Credit. However, the ARPA now allows for a $500 credit for dependents aged 18 and between 19 and 24 if they are full-time college students.

Advance Payments

The act allows for advanced payment of the credit. This means that in 2021, eligible families can receive advance payments of up to $300 per month for each child under six, and up to $250 per month for each child between six and 17.

To keep updated on these changes, the IRS has a helpful resource you can access here.

How Child Tax Credits Impact Your Finances

The Child Tax Credit can significantly reduce your annual tax liability and potentially provide a financial safety net throughout the year. These credits can ease the cost of raising children, making things like education, healthcare, and even basic needs more affordable. Increased credit amounts and advanced payments introduced by the ARPA can even play a part in mitigating financial hardships caused by the pandemic.

Key Points to Remember

It’s essential to stay updated on changes regarding the Child Tax Credit and understand how it can affect your finances. Here are a few critical points to highlight:

– The Child Tax Credit is a non-refundable tax credit designed to reduce your tax liability.

– The American Rescue Plan Act has expanded and temporarily increased the Child Tax Credit.

– Advanced payments of the Child Tax Credit are available for 2021 thanks to the ARPA, allowing families to receive financial aid throughout the year.

– Staying informed of these changes can help you strategically plan and better manage your finances.

Final Thoughts

Navigating the landscape of tax credits and learning how they can impact your finances can be overwhelming. And while tax credits like the Child Tax Credit offer financial relief, it’s always beneficial to consult with professionals to understand all aspects of your tax liabilities. At Brightside Tax Relief, we are committed to providing you with clear, comprehensive tax assistance to help you make the most financially-informed decisions for your family’s future.