Expanded Child Credit and Unemployment Payment Exemption from Gross Income
The funds from the 3rd stimulus package will start coming from the IRS over the next few months. Some of those payments include payments to two specific groups of people.
The first is those that received unemployment payments at some point last year and filed their 2020 tax returns before the IRS revised the 1040 forms to allow for the deduction of some or all of that income. The second is parents of most children age 17 and younger will be getting enhanced child tax credit in monthly payments for the next six months.
The unemployment income deduction for 2020 means payments received up to $10,200 will be treated as tax-free income. The total unemployment benefits received can be deducted from your gross taxable income if your income total does not exceed $150,000. The deduction can be up to $20,400 for couples.
If you have already filed your 2020 tax returns, the IRS is asking for you to be patient as they are likely able to calculate the changes without further action on your part. If you have not filed your 20230 tax returns – now due May 17, 2021 – you can use the new 1040 forms to claim the deduction. If you do not receive the amended refund or tax payment from the IRS please contact your accountant to revise your 2020 tax returns.
The child credit shall be distributed by the IRS in the monthly amount of approximately $300 per child for children under age 6 and approximately $250 for each child between the ages of 6-17. This payment is the result of a boost in the child tax credit under the 3rd stimulus package. The monthly payments will be made as close to monthly as possible and the remainder will be paid out with the tax refund due in 2022.
Other changes to the child tax credit included the 3rd stimulus package are:
- Removal of the restriction that the parent claiming the credit have at least $2,500 of taxable income.
- The new child tax credit applies to children 17 years and younger.
- Now people without tax liability can receive the full amount of the credit for 2021 only.
- Persons with higher income ($150,000 per couple and $112,500 for single) will have the amount of the credit payment reduced by $50 per each $1000 over the allowed income for full credit receipt.