Many veteran households with children may soon become eligible to receive an enhanced child tax credit for 2021. This child tax credit is all part of the American Rescue Plan Act that was signed into law on March 11, 2021. While the headlines were primarily focused on the $1,400 direct cash payments that were issued in March, the plan also includes aid for small businesses, funding for schools, and subsidies for health insurance premiums for plans through the Affordable Care Act.
However, another provision included in the American Rescue Plan Act may have an outsized effect on veteran families. As part of this Act, many veteran households with children under 18 years old may soon become eligible to receive an enhanced 2021 child tax credit, which the IRS plans to begin paying out as direct, advance monthly payments of $250 or $300 per month from July through December 2021.
Key details of the 2021 child tax credit are as follows:
- Married couples with an adjusted gross income (AGI) of $150,000 or less, or $75,000 or less for single filers or 112,500 or less as a head of household qualify for the full amount of the credit. Eligibility is based on the most recent past tax return (2020 if filed by the May 17 deadline, otherwise 2019).
- The total child tax credit per child 5 and under is $3600, and $3000 per child 6-17 years old. This new amount replaces the $2000 per child income tax credit from your 2020 tax return.
- Eligible households will receive half of this credit as monthly payments from July through December 2021 in the amounts of $300 per child 5 and under, and $250 per child 6-17 years old. The other half will be an income tax credit on your 2021 tax return ($1800 per child 5 and under, and $1500 per child 6-17 years old).
- Dependent children who are 18 may also qualify for a $500 one-time payment, along with 19-24 year old full-time college students.
- Taxpayers will have the ability to visit the IRS website to op-out of the monthly payments (e.g., if you prefer a larger tax return, or if you expect your household income to significantly increase in 2021 and disqualify you from the credit). This system is expected to be available by July. The IRS will update their website here when this system or additional information becomes available: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
All in all, this tax credit has the potential to take the financial pressure off many veteran households. Based on the most recent data from the American Community Survey (2019) we estimate that 25% of children in veteran households are under 5 years old and 75% are over 5 years old. That means the average qualified veteran families with children will receive a child tax credit of $6000 per household, or $500 per month between July and December 2021. This will come along with an average income tax credit of $3000 when filing a 2021 tax return. Veterans and transitioning service members with adult children who are 18, or who are between 19-24 full-time college students, may also qualify for a $500 one-time payment.
Along with the benefit for veterans with children, this Act – and the direct cash payments that come with it – may also be especially important for transitioning service members and their families. Since the onset of the public health crisis, service members have been working virtually during one of the most stressful and important periods in their lives.
The challenge of military transition in a public health crisis is also manifested in the alarming number of military families facing food insecurity in America. IVMF found nearly 40 percent of American military families are in need of food during the pandemic.
In addition, the unemployment rates during COVID-19 were at the highest early in the recession with April-June 2020 having the highest unemployment rates for veterans.
That said, veteran married couples with an adjusted gross income (AGI) of $150,000 or less, or $75,000 or less for single filers or $112,500 or less as a head of household will qualify for the full amount of the credit.
This monthly income can potentially offset the challenges presented this past year and allow transitioning service members, veterans, and their families to have more financial flexibility. In addition, with vaccinations rolling out to all Americans over the age of 16 and restrictions being lifted on in-person work and schooling, the enhanced 2021 child tax credit could potentially be a gamechanger for them and offset the financial challenges that COVID presented.
As with many tax credits, individual circumstances will impact who does and does not qualify for the credit. You can get more information about other details to consider by tracking detailed information on this credit through financial guidance websites such as H&R Block or CNET. You can learn about other economic relief as part of the American Rescue Plan Act on this factsheet from the Treasury Department. The IRS website is expected to provide additional updates, tools, and qualification calculators this summer, after the May 17 extended deadline for 2020 income taxes.