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Although you can no longer claim stimulus payments, one tax credit offered during COVID-19 is still available. Learn about how you can save on your tax bill.
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During the COVID-19 pandemic, the federal government made 476 million direct payments and sent out $814 billion in financial relief. The final round of stimulus relief went out in March of 2021, though, and no further checks have followed.
In addition to the direct payments that were made, the American Rescue Plan Act also provided an expanded Child Tax Credit that offered eligible parents $3,000 per child over age 6 and $3,600 for children under 6. This expanded credit has also not been available since 2021.
Despite the fact that no further stimulus payments are likely to hit your checking account any time soon, this doesn’t mean your chance to get free money from the government is over. A valuable tax credit remains for those who are able to qualify for it.
This tax break didn’t disappear with the end of the pandemic relief
Laws passed to provide COVID-19 relief made important upgrades to the Child Tax Credit. Not only did the pandemic stimulus bills expand the tax credit to provide more money, but they also arranged to have half of the amount delivered directly into your bank account at a rate of $250 or $300 a month.
This meant you didn’t have to wait to file your tax return to claim the credit that was owed to you. It just showed up. It’s not doing that anymore, though. But the good news is, the Child Tax Credit itself did not disappear even though the expanded credit did. You can still claim the original tax credit that existed pre-pandemic — although the amount you’ll get is smaller and you need to submit a tax return and wait for the IRS to process it before you get paid.
If you got used to having the money sent to you automatically, or if you didn’t know until the pandemic that you could claim the credit, it’s really important to remember that some of the money is still available to you even though you need to jump through some extra hoops.
The Child Tax Credit currently available offers up to $2,000 per qualifying dependent child, down from the $3,000 or $3,600 you got during COVID-19 — but that is a generous amount when you think about how tax credits work. Unlike deductions, which just reduce the amount of income you’re taxed on, credits actually lead to a dollar-for-dollar reduction in the taxes you owe.
Say, for example, you had a $2,000 deduction. You’d simply subtract that $2,000 from your earnings to get your taxable income and you wouldn’t be taxed on the $2,000 you deducted. If you were in the 22% tax bracket, not being taxed on $2,000 of income could save you up to $440. But a credit doesn’t do that. Instead, it brings your actual bill down. So if you owed $5,000 on your taxes and claimed a $2,000 credit, you’d only owe $3,000 to the IRS.
Since your credit can save you a lot, you’ll want to make sure you claim it — especially since the government isn’t doing as much to subsidize parents and families as it did during the height of COVID-19.
Can you claim the Child Tax Credit?
You have to meet certain requirements to claim the Child Tax Credit. For example:
Your child must be under 17 at the end of the tax year.The child must be your dependent and related to you in a specific way, such as by being a child, stepchild, foster child, full or half sibling, or a descendent of those individuals.The child must have lived with you for at least half the year in most cases and you must have provided at least half their support.Your child needs a Social Security number and must be a U.S. citizen, national, or resident alien.
If your modified adjusted gross income exceeds a certain level ($400,000 for married joint filers and $200,000 for others), you’ll also lose eligibility for some or all of the credit.
If you do not owe the full $2,000 in taxes, you can also benefit from the fact that up to $1,600 of it may be partly refundable. This would mean that you actually get more money back than you paid into the IRS. But you cannot claim the full $2,000 unless you owe at least that much in taxes. If your tax bill is just $1,000, the maximum you’d get back is the $1,600 of the credit that’s refundable and you’d miss out on the remaining $400.
The IRS has an interactive tool you can use to determine if you qualify for the tax credit, so use it before tax-filing season officially starts so you can see if this valuable credit is yours to claim. Give it a try today and, if you’re eligible, be sure to submit your tax forms and get the money you deserve.
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