Illinois residents are being urged to file their 2020 tax returns as soon as possible to ensure that they receive the full benefits of the expanded Child Tax Credit, a provision of the American Rescue Plan that will provide families with tax credits of up to $3,600 per child.
According to the IRS, those families who are eligible through the program will begin receiving payments in July. A monthly advance credit of up to $300 will be paid for each child 5 years of age and younger. A $250 credit will be paid for each child between the ages of 6 and 17, according to the IRS.
What Do Parents Need to Do to Take Advantage of the Credit?
Those seeking the advance tax credit are highly encouraged to file taxes for 2020. Tax returns from 2019 will be used if 2020 returns are not filed yet, according to the IRS.
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Other than filing taxes, no action is needed, according to the IRS.
Who is Eligible?
Eligibility for the expanded child tax credit is based on a taxpayer’s Adjusted Gross Income, the amount of income reported after deductions are made on tax returns.
The breakdown on income is as follows:
Single Filer – Phase out begins with an AGI above $75,000
Head of Household – Phase-out begins with an AGI of $112,500
Couple Filing Jointly – Phase-out begins at an AGI above $150,000
Filers will receive a max credit of $3,600 for each child age 5 or younger, according to the IRS. For children between the ages of 6 and 17, the max credit will be $3,000.
If parents have income above the phase out limits, the max value of the credit is reduced by $50 for every $1,000 in income above the AGI limit.
Families will receive half of the estimated maximum credit this year, and will receive the remainder of the credit when they file their 2021 tax returns, according to the IRS.
In order for parents or guardians to be eligible for the tax credits, children must have a valid Social Security Number, live with residents for at least half of the year, and be under the age of 18 as of Dec. 31, 2021. Parents or guardians must also claim the children as dependents on their tax returns.
Children are eligible if they are residents’ children, adopted children, stepchildren, half-siblings, foster children, grandchildren, nieces or nephews, or certain other relatives, provided that they are claimed as dependents on tax returns.
Is There a Scenario Where I’d Have to Pay Back the Tax Credit?
While there are some protections afforded to taxpayers in the bill, the IRS cautions that the tax credit is based on estimated AGI and other factors, meaning that a significant bump in salary in 2021 could potentially cause taxpayers to no longer be eligible for the credit, or to have to pay back some of the funds paid out.
According to CNBC, lower earners may be protected from having to repay a portion of the funds. Up to $2,000 per child would be shielded from repayment if the error is due to net changes in the number of qualifying children.
More details on potential repayment can be found here.
What if I Don't Want to Receive Monthly Payments?
The IRS is expected to launch a portal for taxpayers to use if they have to make any changes to information included in their tax returns, and that portal can be used to opt out of the monthly payments.
Reasons for opting out would include if a parent wants to apply a lump sum tax credit payment to their 2020 tax liability, but parents are warned that they would have to wait until their 2021 tax returns are filed and processed before receiving those funds.
CNET published more information on reasons why taxpayers could opt out of the program.
When is the Filing Deadline for 2020 Federal Income Tax Returns?
The filing deadline for 2020 income taxes is May 17.
How the Bill Will Help Illinois
According to Rep. Sean Casten, more than 2.5 million Illinois children will benefit from the monthly payments.