People earning less than $75,000 may owe zero federal taxes
HOUSTON - People earning less than $75,000 a year may not owe any federal income tax when they file next year. President Biden's American Rescue Plan passed in March is putting much of that money in their pockets instead.
The extended deadline to file your federal taxes is coming up on May 17 or June 15 for Texans impacted by the winter freeze.
Parents who can take the bigger child tax credit this year will start getting that money in payments from the government in July, and may not owe any federal income tax for the year, according to Congress' Joint Committee on Taxation.
So many families continue to struggle.
"I lost my job at the end of January of last year, so for me, it's been stressful," said single mother Sjolander Gray.
"I'm a single parent. I need all the help I can get right now," said Carol Simpson.
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The increased Child Tax Credit, Earned Income Tax Credit, and stimulus payments are why President Biden's American Rescue Plan may cut tax liability to zero for lower income families.
For individuals earning less than $75,000 a year, the plan calls for $1,400 stimulus checks, plus $1,400 for each child. Add to that, the child tax credit was increased from $2,000 to $3,600 per child under age 6, or $3,000 per child age 6 to 17. And that money will be paid in payments to the taxpayer, starting in July.
"So almost a $4,000 increase from what they're getting now. So you can imagine a family who is making $20,000, another $4,000 in their pocket is a huge deal," said Patrick Bresette, Executive Director of the Children's Defense Fund.
The Earned Income Tax Credit for childless workers was expanded from $543 to $1,502 and raises the qualifying income level from $4,220 to $9,820. That credit is refundable, too.
So after deductions and credits, you could end up owing no federal taxes and receive checks from the government.
Not every household will qualify, and workers will still have to pay 7.65% of their income for Social Security and Medicare.
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Democrats want to make the bigger child tax credit permanent.
"It would be a great and tremendous help, especially for a single parents," said Simpson.
"Any extra money that comes into the house, it benefits me and him," said Gray.
For taxpayers earning between $75,000 to $100,000, the average income tax is expected to be just 1.8%, according to the Joint Committee on Taxation.
Estimated 2021 tax rate on individual income, according to the Join t Committee on Taxation:
AGI tax rate
Less than $75,000 <0%
$75,000-$100,000 1.80%
$100,000-$200,000 5.70%
$200,000-$500,000 13%
$500,000-$1 Million 20.80%
OVER $1 Million 25.80%
This calculator on Omni Calculator can help you estimate your child tax credit.