It looks like the combination of stimulus checks and at least two expanded tax credits will be a boon to most U.S. households.
Between cash hitting bank accounts — in the form of stimulus payments and advance child tax credits — and the expanded earned income tax credit, the value is an average of $3,450 for the bottom 60% of earners (making $65,000 or less per year), according to research from the Institute on Taxation and Economic Policy. And that amount doesn’t factor in the child and dependent care credit, which also is expanded for 2021.
“The people you’d think need the help are going to get it,” said Steve Wamhoff, director of federal tax policy for the institute.
The stimulus checks and expanded tax credits were included in the American Rescue Plan Act, which was signed into law in March by President Joe Biden.
In addition to direct $1,400 payments going to most adults (and their dependents) and the expansion of certain tax credits, the $1.9 trillion package included an extra $300 per week for unemployment insurance, rental assistance and bigger subsidies for health insurance, among other provisions.
The chart below shows the average expected benefit across income groups from the direct payments and the expanded tax credits for children and earned income. The biggest benefit, as a share of income, would go to the bottom 20% of taxpayers.
It’s worth noting that the income ranges shown in the chart reflect amounts before reductions are applied (i.e., certain tax deductions, investment losses, etc.), Wamhoff said. So a higher-earning household could end up with adjusted gross income that’s low enough to qualify for either a stimulus check or tax credits.
For stimulus payments, the $1,400 per person phases out at incomes from $75,000 to $80,000 for single tax filers, $112,500 to $120,000 for heads of household and $150,000 to $160,000 for married couples who file joint returns.
When it comes to the child tax credit, the maximum credit is $3,600 for children younger than age 6 and $3,000 for those age 6 through 17. Phase-outs begin at $75,000 for singles, $112,500 for heads of household and $150,000 for married couples.
Half of the child tax credit is being disbursed as an advance on 2021 taxes in six monthly installments. For households getting the full benefit, those payments will be $300 per month for kids under the age of 6 and $250 for those ages 6 to 17.
Additionally, the child tax credit will be fully refundable at tax time if the amount the taxpayer is entitled to is more than their tax liability. Typically, the maximum that can be refunded is $1,400.
For taxpayers whose income is too high to qualify for the expansion, the regular credit of $2,000 per child can still be taken as long as your adjusted gross income is below $200,000 (single filers) or $400,000 (joint filers).
The earned income tax credit for childless workers also was expanded: The maximum credit in 2021 is $1,502, a boost from $543, according to the Tax Foundation. The benefit will be realized when taxpayers file their 2021 returns in spring 2022.
Also, the March legislation boosted the income level (to $9,820 from $4,220) at which the earned income tax credit reaches its maximum, as well as changed the phaseout to begin at $11,610 instead of $5,280 for individual tax filers. The ages for qualifying for the credit also is changed for this year: The minimum age is 19 instead of 24 and the maximum age of 65 would be eliminated.
As mentioned, the child and dependent care credit also has been expanded. You may be able to get back up to 50% of your childcare costs of up to $8,000 for someone under age 13 ($16,000 in expenses for two or more dependents). In other words, one child could mean a credit of $4,000, while two or more children could yield a credit of $8,000.
The credit starts phasing out at $125,000 in adjusted gross income and disappears entirely at income of $438,000.
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