The revised Child Tax Credit, as part of the American Rescue Plan, increases the amount of money paid to parents and changes its implementation.
(CBS Detroit) — The Child Tax Credit was established over two decades ago to ease the financial burden of raising a child. Parents and guardians in qualifying households are about to receive a little more help from the federal government. The American Rescue Plan, passed in mid-March, increases the amount of the credit and changes its implementation in important ways. The $1.9 trillion COVID relief package raises 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 no longer have to wait for their tax refunds to see that money either. Payments will be issued on a monthly basis starting this summer. While these and other details have been available for months, one key piece of information remained outstanding — the program’s start date. The Treasury Department and Internal Revenue Service (IRS) ended the suspense this week. Child Tax Credit payments will be automatically deposited on a monthly basis starting July 15. Each subsequent payment will be issued on the 15th of the month through December of 2021. If the 15th is a weekend or holiday, the money will arrive on the closest business day. The remainder will be issued when the recipient files their 2021 taxes. Most eligible recipients will not have to take any action to initiate payments. The payments will just start based on the information the IRS already has on file. The 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 $1.8 trillion, seeks to address inadequacies in childcare, education and paid leave. A fact sheet on the plan calls it “an investment in our children and our families—helping families cover the basic expenses that so many struggle with now, lowering health insurance premiums, and continuing the American Rescue Plan’s historic reductions in child poverty.” Many Democrats, however, want to make the Child Tax Credit permanent. Massachusetts Representative Richard Neal, chairman of the House Ways and Means Committee, recently made public a plan to do just that. The suggested change came as part of a broader draft proposal to guarantee paid family leave and access to childcare. How much influence this has on the American Families Plan remains to be seen. The 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. 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 a household’s Child Tax Credit. The IRS recently confirmed that it will set up a portal to allow claimants to adjust their income and custodial information, thus lowering their payments.
