Community Change’s Child Tax Credit and Earned Income Tax Credit Benefit Calculator is designed to determine the amounts of a household’s 2020 Child Tax Credit (CTC), 2021 Advanced CTC, 2020 Recovery Rebate Credit (RRC), Earned Income Tax Credits (EITC) for 2020 and 2021, and the third Economic Impact Payment (EIP) distributed by the federal government beginning in March 2021; calculations are based on applying tax law (IRS tax forms, federal statutes, and federal legislation) to answers that users of the tool enter via an online questionnaire. Combined, the RRC and the third EIP constitute the three stimulus payments that U.S. households were eligible to receive to combat the economic impacts of the COVID pandemic.
The methodology of the calculator and the questions it asks were designed to minimize the number of assumptions the tool makes and improve the accuracy of its calculations. As a result, there are several questions about dependents that may sound repetitive, but capture occasionally subtle distinctions between these credits. We also ask questions about whether users have an ITIN as opposed to an SSN. This can impact eligibility for these credits as well as the amounts received. The calculator does not ask users to provide either their SSN or ITIN.
Some assumptions the tool makes, however, include that a user is not a dependent on someone else’s tax return, that a married couple living together will file their taxes jointly, that an unmarried person with dependents will not file as Single when filing as Head of Household is more advantageous, and that users are not entering contradictory or nonsensical information. The tool also assumes that no member of the household has an undocumented immigration status. For the 2021 calculations, like any other tax calculator, the output of the tool also relies on users to have the prescience to know year-end information like marital status, number of dependents, and income.
Determining Tax Filing Status
This tool is directed toward users that have not historically filed taxes as well as users who are familiar with tax filing. To help users who have not previously filed a tax return, or are unsure of their tax filing status, the tool allows them to select “I don’t know or I’m not sure” and determine their likely tax filing status for them via questions about their marital status and number of dependents. Filing status is used to inform eligibility and amount received for each of the credits.
Calculating Economic Impact Payments and Recovery Rebate Credit
As a response to the COVID-19 pandemic, the United States government provided three rounds of Economic Impact Payments or “stimulus checks” to eligible individuals and households. Users answer questions about their marital status, adjusted annual gross income, and number of qualified dependents which determines their eligibility for each of the payments. By completing a 2020 tax return, families can receive their third Economic Impact Payment (third EIP) as well as the first two payments as the Recovery Rebate Credit (RRC). These two payments/credits (the third EIP and the 2020 RRC) constitute the entirety of the “stimulus check” payments that households were eligible to receive as of June 2021.
Calculating 2020 Child Tax Credit and 2021 Advanced Payments
Because the 2020 Child Tax Credit is not fully refundable, we cannot predict the precise credit amount for a user without knowing that user’s tax liability. Rather than asking a much longer list of questions to determine tax liability or making questionable assumptions to estimate tax liability, this tool provides the maximum amount that families could potentially receive and an explanation that this may not be the full amount due to the non-refundability of the 2020 CTC.
Based on users’ 2020 adjusted gross income and number of qualified dependents, the tool also provides an estimate of the Advanced Child Tax Credit that families could receive monthly between July and December 2021. We have decided against including a calculation of the year-end 2021 CTC to reduce question burden and in recognition that while the advanced credit can be determined based on past income, year-end 2021 income is still very uncertain for many families.
Calculation of 2020 and 2021 Earned Income Tax Credits
To estimate a user’s EITC for 2020 and an estimate of their EITC for 2021 based on anticipated 2021 income, users are asked to answer questions about their marital status, number of qualified dependents, adjusted gross income, and earnings for the years 2019, 2020, and 2021. Users without dependents are also asked their ages and other questions to determine eligibility under the expanded 2021 EITC.