Child Tax Credit Calculator

The $1.8 trillion American Families Plan was introduced on 28 April 2021 when President Joe Biden delivered his first address to a joint session of Congress. The American Families Plan is the second piece of the US economic recovery program, following the $1.9 trillion stimulus package – the American Rescue Plan signed by the president in March 2021. As the COVID-19 pandemic has caused severe financial problems to a lot of families in the country, this package is designed to remedy it.

Unlike the previous stimulus packages, which focused on helping small businesses, this package shifted its focus into a variety of different sectors. This package invests in not only the education, medical, and housing sector, but it also aims to help families with senior people and low income. This bill is expected to cut the child poverty in half within 2021.

In particular, this stimulus package includes the Child Tax Credit scheme, signifying the government's effort to help families to see through any financial hardships caused by the pandemic. Also, by expanding the Child Tax Credit all the way to 2025, this program is able to help more than 65 million children. Hence, we have created this child tax credit calculator to facilitate you in finding how much money you are eligible to claim following this stimulus package.

In a landmark late-night decision, the U.S. House of Representatives cast their votes in favor of a groundbreaking $78 billion tax package. This exciting development heralds the introduction of an enhanced child tax credit alongside a series of tax incentives for businesses, sparking widespread anticipation.

The fruit of relentless negotiations, this bipartisan pact was masterfully crafted by Senate Finance Committee's Ron Wyden (D-Ore.) and House Ways and Means Committee's Jason T. Smith (R-Mo.), who dedicated months to sculpting this agreement. While the bill's fate in the Senate hangs in the balance, it stands as a beacon of hope for President Biden, potentially marking a significant triumph in his quest to revive a key feature of his economic strategy—the expanded child tax credit, a cornerstone of his 2021 American Rescue Plan.

Recall the 2021 surge in the credit to $3,000 (and $3,600 for children under 6) as part of Biden's stimulus agenda, a boost that sadly reverted to $2,000 with the expiry of the plan at 2021's end.

The deal's most transformative aspect lies in its extended generosity towards lower-income families, who previously might not have qualified for the full credit. Under the new terms unveiled on Tuesday, these families stand to gain significantly, with every child now eligible for the credit, regardless of the full $2,000 per child qualification.

Take, for instance, the scenario of a single mother with three children: one earning $10,000 a year currently qualifies for only $1,500 in tax credits, while another making $175,000 receives $6,000. This deal rewrites the narrative, maintaining the $6,000 for the higher earner, but dramatically increasing the support for the lower earner to $4,500—a game-changing uplift that triples her current benefit. This bold step not only underscores the deal's inclusivity but also its profound impact on families across the economic spectrum.

Before we get into calculating the child tax credit, let's spend a bit of time understanding it.

As mentioned, the child tax credit is an initiative introduced by the US government to boost the income of families with dependents. Before introducing the new child tax credit, every family is eligible for a $2,000 tax credit for each dependent below 17 years old. With the new child tax credit program, the US government is committed to expanding the existing child tax credit scheme. Instead of getting $2,000 per dependent, the upper limit is now raised to $3,600. Furthermore, the scope of the child tax credit has been expanded – instead of covering just children 16 years old or younger, the child tax credit is now eligible for children up to the age of 17.

In detail, the latest child tax credit scheme allows each family to claim up to $3,600 for every child below the age of 6, and up to $3,000 for every child below the age of 18. However, these tax credits begin to phase out at certain income levels, depending on your filing status. The annual income thresholds for different filing status are:

• Single return: $75,000;
• Head of household return: $112,500; and
• Jointly return: $150,000.

The increased child tax credit is reduced by $50 for every $1,000 income above the thresholds. For instance, if you are filing for a single return and your annual income is $77,000, you will only be eligible for $3,500 for each child under 6 years old and $2,900 for each child under 18 years old. This reduction only works on the increased tax credit amount. This means you will still be eligible for at least $2,000 tax credit for every dependent below the age of 18 years old, so long as your annual income is less than $200,000 for individuals and $400,000 for married couples. If you're not sure, you can calculate it with the annual income calculator.

It is important to understand that the child tax credit is not equivalent to an income tax deduction. Unlike a tax deduction, which reduces the amount of your income that is subjected to income tax, child tax credit cut down your tax liability directly.

For example, if you owe $5,500 of income tax to the government, getting awarded $2,000 of the child tax credit will reduce your tax bill to $3,500. Moreover, the child tax credit is also designed to be tax refundable, up to a limit of $1,400. For instance, if you are eligible for a $2,000 tax credit, but your tax bill is only $1,500, the Internal Revenue Service (IRS) will refund you the difference. In the example mentioned, you will get a tax refund of $500. However, according to the latest child tax credit scheme, any difference in the tax year 2021 is fully refundable, regardless if it is above or below the $1,400 limit.

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Calculating the child tax credit is actually less complicated than it seems. There are only 4 steps involved.

1. Check if you have filed a tax return.

Since you will be receiving the money in terms of the tax credit, you need first to make sure that you have filed your tax return to be eligible.

2. Take into account your adjusted gross income.

As mentioned above, your child tax credit will start to phase out when your annual income exceeds a certain amount. You can find your AGI in your tax form.
Hint: You can read more about AGI and its modified version in the MAGI calculator.

3. Determine the number of dependents and their age.

The next step is to determine the number of your children and their age. Specifically, you need to determine:

• Number of your children with age 6 or below - you can receive up to $3,600 for each one; and
• Number of your children with age between 6 and 17 (below 18 years old) - you can receive up to $3,000 for each one.

Please be aware that your children need to be under 18 years old, or 6 years old if you are looking at claiming up to $3,600, at the end of the 2021 tax year to be eligible for the child tax credit. For example, if your child's 18th birthday is before the end of the 2021 tax year, he or she will not be eligible for the child tax credit.

4. Check your filing status.

Next, you need to determine your filing status as it vastly impacts the amount of child tax credit you will be receiving.

If you are filing for a single return, your child tax credit phases out if your annual income exceeds $75,000. On the other hand, if you are filing a joint return, the phasing out only starts when your combined annual income exceeds $150,000. Lastly, your child tax credit starts to phase out when your annual income exceeds $112,500 if you are filing as a head of household.

Step back now, allow our child tax credit calculator to do the magic, and you shall see the amount of child tax credit you are eligible for.

In order to be eligible for the child tax credit, there are a few requirements that you need to meet:

• Your children must have a Social Security number;
• You or your household needs to earn at least $2,500 per year;
• Your annual income must be less than $200,000 for individuals and $400,000 for married couples;
• Your children must be under the age of 18 at the end of the tax year;
• Your children did not provide themselves with more than half of their living expenses;
• Your children cannot file a joint return on that particular tax year;
• Your children must be listed as dependent on your federal tax return;
• Your children must be either US residents, US nationals, or US resident aliens;
• Your children must live with you for more than half of the tax year; and
• Your children need to be your:

• Daughter
• Son
• Stepchild
• Foster child
• Adopted child
• Brother
• Sister
• Stepbrother
• Stepsister
• Half-sister
• Half-brother
• A direct descendant of any of the abovementioned, e.g., your grandchildren.

To find out more about the child tax credit scheme within the American Rescue Plan, please visit the US Treasury or the IRS.