In March, President Biden announced the American Families Plan, which will provide direct support to families through various programs including childcare, paid family leave and education.  As part of this proposal, families will be able to receive tax credits of up to $3,600 per child. What might this plan mean for your family?  Here are the key points you need to know.

Beginning July, the IRS will start sending low and middle-income qualified families monthly payments of $250 or $300 through the end of the year. These payments are an expansion of the previous $2,000 per child credit to $3,000 for those ages six and older, and $3,600 for children six and under.  Come tax season 2022, the remaining half of this credit will be claimed by families when they file their 2021 income tax return.

Those who qualify for the full Child Tax Credit must receive an annual gross income below $75,000 on single returns and $150,000 on joint returns. However, families above these thresholds may still qualify to receive support. If you’re above the threshold but still make below $200,000 on a single return or $400,000 on joint, the amount of credit will be reduced by $50 for every additional $1,000 made.

As an extension to this plan, the administration has separately proposed the Child and Dependent Care Tax Credit (CDCTC) in support of working parents or legal guardians to help compensate them for the costs associated with childcare or dependents with disabilities. Families will be able to receive a tax credit for as much as half of their spending on qualified childcare for children ages 13 and under obtaining upwards of $4,000 for one child and $8,000 for two or more.

The same structure will go for the CDCTC as the Child Tax Credit. For families making less than $125,000 a year, a 50 percent reimbursement will be obtainable, and partial credit will be available for families making an annual gross income between $125,000 and $400,000 a year.

For a majority of U.S. families, relief is needed and it’s on its way. However, depending on your family’s financial situation, consider the long-term impact of this support prior to accepting it. How might this affect your income taxes the next fiscal year? These are questions to start asking yourself as details on this proposed credit continue to unfold.

Bottom line, based on your family income, consider the long-term impact of this plan before acting on it.

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