For each child under the age of 17, the child tax credit can help you decrease your tax liability by up to $1,000. The American Rescue Plan increased the credit limit to $3,600 per child, and some families were able to start receiving monthly payments of $250 to $300 per child without having to do anything. This can result in significant tax savings for Airbnb hosts with children.
The American Recovery and Reconstruction Plan
On March 11th, 2021, the American Rescue Plan was signed into law. The plan’s goal was to provide some relief to individuals who had been impacted the hardest by the pandemic’s economic repercussions. The American Rescue Plan boosted the child tax credit, earned income credit, and child and independent care tax credit, and offered $1,400 in wages per person. It also extended unemployment benefits, offered assistance to small enterprises, and reduced healthcare prices. These are the key advantages, and if you want to learn more about the American Rescue Plan, the White House has a website set up for that purpose.
What Is the Child Tax Credit and How Does It Work?
Who qualifies for the child tax credit is the first question you might have.
To begin, you must have at least one child who is under the age of eighteen. You must be able to claim that child on your taxes, and no one else may claim them. This year, the American Rescue Plan expanded eligibility to include children under the age of 17, which was previously only available to children under the age of 16.
What Is the Amount of the Child Tax Credit?
The amount you receive if you have a qualified child is determined by the child’s age. For children under the age of six, you will receive $3,600, and for children from six to seventeen, you will receive $3,000. To qualify, you must have earned less than $150,000 as a couple or $112,500 as a single parent. The amount you’ll get is determined by a formula that takes into account your income and other eligibility criteria.
Here’s an illustration. Under the new plan, a couple earning around $100,000 with two qualified children under the age of six can expect to get $7,200. Between July and December 2021, they would be entitled for $3600 in six monthly installments of $600. They’d get an extra $3600 if they filed their taxes by April 2022.
In 2022, who is eligible for the Child Tax Credit?
To be eligible for the credit, you must complete certain requirements. To begin, your child must be 18 years old by December 31, 2021. A qualifying child can be a biological child, a stepchild, an adopted child, or a court-ordered foster child. Even if the adoption isn’t completed by the end of the year, the regulations treat adopted children as your own.
During the tax year, an eligible child cannot give more than 50% of their own financial support. To qualify as a qualifying child, they must have lived with you for at least six months and be a U.S. citizen, national, or resident alien. In addition, your family’s income must meet certain conditions.
2021 vs. 2022 Child Tax Credit
The credit for 2021 has raised to $3,600 from $2,000, and you will receive a credit for each kid under the age of six. The amount increases from $2,000 to $3,000 for children aged 6 to 17.
Is the Child Tax Credit from the IRS set to expire?
In 2021, the child tax credit was created in response to unusual circumstances. Legislators are currently working on phasing down the additional payments, but the measure has not yet been passed. The credit will revert to pre-2021 levels in 2023 if nothing changes. The child credit tax will very certainly be extended beyond 2023, but no number has been established as of this writing.
Child Tax Credit Advances
Some taxpayers were eligible for advance payments of up to half of the estimated 2021 credit as part of the American Rescue Plan of 2021. They can still claim the remainder of the credit on their taxes in 2021. Tax filers had to have a qualified child living in the home and make less than particular income levels to be eligible for accelerated payments. In order to get advance payments, filers had to meet additional requirements. The IRS website has a comprehensive list.
How to Get Rid of Advances on Child Tax Credits
If you were eligible for monthly advanced payments from child tax credits, you can opt-out if you choose to receive the entire amount in one lump sum when you file your taxes in 2021. To opt-out of advanced payments, go to the Child Tax Credit Alter Portal, log in, and update your options according to the instructions. You can also use the portal to update any information, such as bank account details.
What is the procedure for claiming the Child Tax Credit?
You must file a federal tax return to earn a child tax credit. Those who got advance payments in 2021 will also be required to file a federal tax return to reconcile the amount received with the amount owed.
If the IRS concludes that a taxpayer knowingly or recklessly disobeyed the requirements when submitting for a child tax credit, the taxpayer will be barred from claiming the credit for the next two years. A taxpayer will be barred from claiming credit for ten years if it is discovered that the credit was issued due to deception.
Most tax software packages will walk you through the requirements for the child tax credit, and as long as you submit data correctly and properly, you shouldn’t have any problems. If you have any questions, however, you should see a tax professional.
What if I Forgot to Claim the Child Tax Credit the Previous Year? You can amend your prior return to earn a child tax credit if you forgot to claim it. To be eligible for the credit, your child must have received a Social Security number by the return’s due date.
Is the Higher Child Tax Credit Going to Be Permanent?
Right now, that seems doubtful. There aren’t enough votes in the Senate to permanently increase the child tax credit without extra support.
It’s not out of the question, though. Smith replies, “I suppose it’s feasible to make something retroactive or a stand-alone provision.” But no one in Washington has mentioned it so far.
Instead, an increase in the child tax credit appears to be off the agenda right now. Despite the fact that it was included in the planned Build Back Better Act, Senator Joe Manchin — a vital vote in its passing – opposes preserving the credit at the higher 2021 levels.
As a result, parents who were accustomed to receiving advance payments last year will have to adapt their budgets this year to account for the additional funds.
The child tax credit may provide some relief to Airbnb hosts, allowing them to better manage monthly expenses during a period when tourism is down. While the credit is just for taxpayers with a qualified child, there are still other programs that may be able to help you save money on your taxes in 2021 if you don’t have one. You should also look into the Recovery Rebate Credit and other earned income credits to see whether you qualify. Every little bit helps as we all struggle to get by in these trying times.