The American Rescue Plan has expanded the Child Tax Credit and the Child and Dependent Care Credit creating major tax benefits for taxpayers with dependent children.  The Child Tax Credit has been expanded from $2,000 per child under the age of 17 to $3,000 per child under the age of 18.  Children under the age of 6 qualify for a $3,600 credit.  These expanded credits begin to phase out at for single taxpayers with AGI over $75,000 and joint filers with AGI over $150,000.  Additionally, the credit has been made fully refundable and will be paid in the form of an advanced credit beginning in July of 2021 for eligible taxpayers.  Taxpayers will likely begin receiving $300 advanced credits in July via direct deposit, however the IRS is still working out the details of how they will administer this program, including designing an online portal where taxpayers can update their information or even elect out of receiving an advanced payment.

The American Rescue Plan also expanded the Child and Dependent Care Credit, making it refundable and increasing the amount of qualified expenses that are eligible for the credit.  The dollar limit on qualified childcare expenses has increased from $3,000 to $8,000 for one child, or from $6,000 to $16,000 for more than one child.  The applicable credit percentage applied to these dollar limits was increased to 50% from 35% for taxpayers with AGI of $125,000 or less, increasing the total potential credit to $4,000 for one child or $8,000 for multiple children. The applicable credit percentage begins to phase out at AGI’s above $125,000.

If you have any questions regarding these changes, please do not hesitate to contact your C&J engagement team.

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