Right about the time Congress was passing the 2021 American Rescue Plan to address the economic fallout of COVID-19, the Pew Research Center was examining how big a financial hit most families took. According to Pew survey results, 49% of lower-income adults said their household experienced job or wage loss because of the pandemic, and 45% of middle-income adults said the same.
The American Rescue Plan aimed to soften those monetary blows, and much of the aid available comes in the form of tax relief and tax credits. There may still be some COVID support available to you. Here’s a look at what the legislation did and how it might apply to you.
On credits
Tax credits expand the amount of money taxpayers can keep in their pockets rather than pay out to the government in taxes. Unlike a tax deduction – which lowers how much of your income is taxable – a tax credit is a dollar-for-dollar reduction for the money you owe on your tax bill. If you owe $1,500 and have a $1,000 credit, that credit will bring your tax bill down to $500.
Some tax credits are fully refundable, so like payments you’ve already made to the government, anything in excess of the taxes you owe will come back to you. For example, suppose the taxes you owe equal $1,000 but the tax credit you’ve earned is $1,500. You won’t need to pay that $1,000 tax bill and your refundable credit will get you a $500 refund.
The COVID boost
The American Rescue Plan’s expansion of the existing Child Tax Credit amped up support for working families and delivered a boost bigger than any before. Under this COVID-relief legislation, the Child Tax Credit grew from $2,000 to $3,000 per child per year for kids age six and over, while those under the age of six earned a family a $3,600 credit per year. The act also raised to top age for which children earn the family a tax credit from 16 to 17.
Working families with two parents in the house can make up to $150,000 and earn the credit, while single-parent households can earn up to $112,500.
The American Rescue Plan was signed into law on March 11, 2021, and by July, monthly payments of these tax credits began going out to families who’d filed taxes for 2019 or 2020 or had signed up to receive stimulus checks from the IRS. Those payments were an advance tax credit – a payment in anticipation of what people would be able to take off their final tax bills when they filed taxes in 2022. Depending on the age of the children, those advance credits meant payments of $250 to $300 per child per month.
But, since those payments only started reaching families mid-year, there’s still money to be gained for many families with children. To get the rest of the money, you must file taxes for 2021. Child Tax Credits are fully refundable, so if you owe taxes for the year, these credits will lower the amount you owe. If you’ve paid in more taxes than you owe, the credits will amplify what you get back in a refund. If you didn’t get any Child Tax Credit payments during 2021, you’ll get the full credit when you file taxes in 2022.
Even if you don’t make enough money to file actual tax returns, you can still get the tax credits – and the refund – by filing free through this online non-filer sign-up tool.
Well-earned
Another tax credit amplified by the COVID-relief act was the Earned Income Tax Credit (EITC). To earn it, you must have some qualifying income from wages, salary, tips and other work-related sources, but you can’t go over certain income limits, which go up depending on if you have kids, as well as how many kids you have.
In 2021, the amount of money you can earn and still qualify for this credit increased by between $500 and $1,000 per year for most income categories. However, people filing as single or head of household with no children can earn an additional $5,610 and still qualify for the credit, while childless couples can earn an additional $5,670.
Like the Child Tax Credit, the EITC is fully refundable, so if you’ve paid federal taxes throughout the year and you qualify, it can put money back in your pocket.
The only way to get that money is to file your taxes. What’s more, the sooner you file, the quicker you’ll get your refund. Expect delays, though. Budget cuts and pandemic-related issues have left the Internal Revenue Service short-staffed. Filing before the deadline – April 18 this year – will help speed up processing of your return. So will filing electronically.
If you need help filing, you may be able to get it free. The IRS has two programs in place that offer free basic tax preparation for some people. Called the Volunteer Income Tax Assistance (VITA), the program is available to:
People who generally make $58,000 or less
Persons with disabilities; and
Limited English-speaking taxpayers
To find a location for help near you, use this site-locator tool from the IRS. Forsyth County residents may be eligible for free tax services at Experiment in Self-Reliance.
Comentarios