Coronavirus-Related Tax Issues
In response to the COVID-19 pandemic, Congress passed the CARES Act in March 2020 and the American Rescue Plan Act in March 2021. These statutes made a number of changes to federal law affecting the relationship between American taxpayers and the IRS. Among the changes have been the introduction of Economic Impact Payments (commonly known as "stimulus checks") and modifications to the Child Tax Credit for 2021.
Missing an Economic Impact Payment?
As of April 2021, the IRS has disbursed three rounds of Economic Impact Payments. Eligibility for the payments was based on information contained in each individual's 2018 or 2019 Form 1040 tax return. In general, a U.S. citizen or resident alien who could not be claimed as a dependent on another individual's tax return and had a Social Security Number that was valid for employment in the United States was eligible to receive an Economic Impact Payment. However, the payment may have been reduced if the taxpayer's adjusted gross income exceeded certain amounts.
If you were eligible but did not receive an Economic Impact Payment during either the first or second disbursements, you may be able to claim the amount via the Recovery Rebate Credit. This may be done by filing a Form 1040 federal tax return for tax year 2020. The Recovery Rebate Credit is claimed on the return by completing the attached Recovery Rebate Credit worksheet and entering the amount on Line 30 of the return itself. Please note that, while eligibility for the initial payments was based on the individual's 2018 or 2019 tax returns, eligibility for the Recovery Rebate Credit is based on the individual's 2020 tax return.
More information about claiming a missing Economic Impact Payment on your 2020 tax return may be found here.
Changes to the Child Tax Credit for 2021
The American Rescue Plan Act of 2021 made four significant changes to the Child Tax Credit, all applying to the 2021 tax year only. First, taxpayers may claim 17-year-old children as dependents for the purpose of claiming the Child Tax Credit, where previously the eligible age was capped at 16 years old. Second, the amount of the credit is $3,000 (or $3,600 for children under the age of six) per child, as opposed to the prior $2,000 per-child credit amount. However, the amount of the credit will be gradually reduced for taxpayers with adjusted gross incomes exceeding certain amounts, with a floor at the normal $2,000 per child amount.
Third, the Child Tax Credit is fully refundable for tax year 2021. Previously, filers whose tax liabilities were lower than the amount of the credit could only see up to $1,400 refunded to them per child. For 2021, they may have the full amount ($3,000 per child or $3,600 per child under the age of six) refunded to them, regardless of tax liability.
Fourth, the credit will be disbursed in monthly amounts by the IRS between July and December 2021. The total amount disbursed for a given taxpayer should equal one-half of the total amount for which that taxpayer is eligible. In other words, a taxpayer who claims one ten-year-old child as a dependent should receive $1,500 in total payments during the second half of 2021 and another $1,500 in the form of a tax credit on her Form 1040 for tax year 2021.
For more information and updates on the 2021 Child Tax Credit, please visit IRS.gov.