By Carmen Reinicke - CNBC
For millions of American families, the new expanded child tax credit has brought extra money a month.
Even better, there are other tax credits that were expanded during the COVID-19 pandemic that people will be able to use to increase refunds or to potentially offset their tax liabilities.
This is because the child tax credit payments are only half of the total benefit, which means that families will see the other half when they file their 2021 tax returns next year.
Therefore, getting the money early can affect some families' tax returns.
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The other tax credits will come in handy to support families, as some of the other benefits [from the pandemic] expire, according to Ashley Burnside, a policy analyst at the Center for Law and Social Policy.
Here's what families and individuals need to know:
Child and dependent care tax credit
The $ 1.9 trillion American Rescue Plan signed in March also expanded the child and dependent care tax credit, a lesser-known benefit aimed at helping working families.
This credit - which is independent of the child tax credit - offers working parents extra help when it comes to paying taxes for the costs associated with caring for children under 13 and other eligible dependent adults.
For fiscal year 2021, the credit has been expanded to $ 8,000 per dependent from $ 3,000 and is capped at $ 16,000 instead of $ 6,000.
Also, some families, depending on their income, will get the benefit as a refundable credit, which means that it will reduce what they owe to the Internal Revenue Service (IRS) or it will be returned in the form of a refund.
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This helps lower-income families get the money back, as the fact that the credits are fully refundable means that you don't have to have any taxable income to take advantage of it.
Flor Treviño, 40, a nurse with the COVID-19 unit at United Memorial Medical Center in Houston, Texas, prepares dinner after work for her husband José Treviño, 44, and their daughter Stacy Treviño, 17, on Dec. 7, 2020.Carolyn Cole / Los Angeles Times via Getty Images
"It can help families with daycare expenses, which of course is another financial need that many parents have, especially during the coronavirus crisis," Burnside explained.
Income tax credit
The income tax credit also received a boost in 2021 and future years due to the pandemic.
It also helps workers with low and moderate incomes, both with and without children.
The earned income tax credit now ranges from $ 1,502 to $ 6,728, depending on income and the number of children in the household.
Since many families lost income due to the pandemic, which could reduce the amount of credit they would be entitled to, they can use their 2019 income to calculate the benefit if it means they will receive more money in 2021.
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Like other credits, this one is also refundable, which means that families will have their tax payment reduced or will receive the money as a refund next year.
This year, the maximum benefit of the earned income tax credit also widened for childless workers, nearly tripling to $ 1,502 from $ 543.
The American Rescue Plan also increased the income range in which these workers can claim the credit to about $ 21,000 from $ 16,000 and broadened the age range of those eligible to include adults from 19 to 24 years old.
These changes will help support about 17 million people, according to an estimate by the Center on Budget and Policy Priorities.
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"We know that the Earned Income Tax Credit (EITC) currently lifts more families out of poverty than food stamps, housing subsidies and unemployment insurance combined," said Otis Rolley, vice president. Senior of the Equity and Economic Opportunity Initiative in the United States of the Rockefeller Foundation.
Enlargement will go even further to lift people out of poverty, according to Rolley.
Some people may also get a boost at the state level.
Due to the pandemic, at least 10 states have so far decided to use the funds from the American Rescue Plan to add or enhance statewide income tax credits.
What's next
Of course, families that chose not to pay the child tax credit upfront will generally see a much larger refund than usual for 2021, or have their obligation reduced more than usual, as they will receive all of the enhanced benefit on the spot. of the tax return.
Additionally, there are many individual considerations that go into calculating each family's tax liability and potential reimbursements.
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This year, due to the changes, it may be a good idea for families to enlist the help of a professional tax preparer to make sure they are taking advantage of all the credits to which they are entitled.
There are many free services to help low-income people prepare and file their taxes.
Although some of the changes that will affect returns are only for 2021, there may be more updates on the horizon.
Democratic lawmakers want to extend the child tax credit and make the increase in the earned income tax credit permanent.