Raising a child is very expensive, but the expanded Child Tax Credit is about to give parents some more money to help.
(CBS San Francisco) — Raising a child costs a lot of money. Government estimates put the number at over $230,000 per child, not including college, and that figure can be even higher based on the local cost of living. The Child Tax Credit was originally implemented over two decades ago to lessen the financial burden. And millions of parents and guardians are about to receive some more help from Uncle Sam. The American Rescue Plan, signed into law in March, raises the credit amount and changes how it’s implemented. The $1.9 trillion COVID relief package increases the Child Tax Credit from $2,000 to up to $3,600, depending on the child’s age and the family’s income. Qualifying parents will not have to wait for their tax refunds to see that money either. Payments will be issued on a monthly basis starting this summer. According to the stimulus package, the Internal Revenue Service (IRS) will pay out $3,600 per year for each child up to five years old and $3,000 per year for each child ages six through 17. Payments will be issued automatically on a monthly basis from July to December of 2021, with the remainder issued when the recipient files their 2021 taxes. (IRS Commissioner Charles Rettig recently confirmed a July launch “with payments going out on a monthly basis.”) The IRS will pay $500 for dependents age 18 or fulltime college students up through age 24, but only once. Payments will be based on the adjusted gross income (AGI) reflected on a parent or parents’ 2020 tax filing. (AGI is the sum of one’s wages, interest, dividends, alimony, retirement distributions and other sources of income minus certain deductions, such as student loan interest, alimony payments and retirement contributions.) The amount phases out at a rate of $50 for every $1,000 of annual income beyond $75,000 for individuals and beyond $150,000 for married couples. The benefit will be fully refundable, meaning it will not depend on the recipient’s current tax burden. Qualifying families will receive the full amount, regardless of how much — or little — they owe in taxes. There is no limit to the number of dependents that can be claimed. As an example, suppose a married couple has a four-year-old child and an eight-year-old child and showed an annual joint income of $120,000 on their 2020 taxes. The IRS would send them a monthly check for $550 starting in July. That’s $300 per month ($3,600 / 12) for the younger child and $250 per month ($3,000 / 12) for the older child. Those checks would last through December. The couple would then receive the $3,300 balance — $1,800 ($300 X 6) for the younger child and $1,500 ($250 X 6) for the younger child — as part of their 2021 tax refund. Parents of a child who ages out of an age bracket will be paid the lesser amount. That means if a five-year-old turns six in 2021, the parents will receive a total credit of $3,000 for they year, not $3,600. Likewise, if a 17-year-old turns 18 in 2021, the parents will receive $500, not $3,000. An income increase in 2021 to an amount above the $75,000 ($150,000) threshold could lower your Child Tax Credit. The IRS will reportedly set up a portal to allow claimants to adjust their income information, thus lowering their payments. Failure to do so could increase your tax bill or reduce your tax refund once 2021 taxes are filed. Recipients will also be able to opt out of periodic payments in favor of a one-time payment at the end of the year. Eligibility requires that the dependent be a part of the household for at least half of the year and be at least half supported by the taxpayer. A taxpayer who makes above $95,000 ($170,000) will not be eligible for the expanded credit. But they can still claim the existing $2,000 credit per child. “Big changes to the way that the tax credit is structured,” says Stephen Nuñez, the Lead Researcher on Guaranteed Income at the Jain Family Institute, an applied research organization in the social sciences. (Nuñez studies cash welfare policy, that includes field work to answer policy-relevant questions about the social safety net.) “Much more generous, fully refundable, no longer any work requirement and the possibility that it would be paid out on either a quarterly or even monthly basis. The newly revised Child Tax Credit will last only one year. The rules of reconciliation, which Democrats used to pass the stimulus package containing the expanded credit with a simple majority, don’t allow for deficit spending. Legislation must be deficit-neutral or deficit-reducing for the year, as well as for the next five years and 10 years. The thinking was that political pressure from supporters of a widely popular program will force Congress to extend it in the years to come. Biden has since come out in support extending the enhanced credit until 2025 as part of his American Families Plan. The plan, worth approximately $1.
