More money could be on the way to those who need it in 2021.
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Congress is working on the details of President Joe Biden’s $1.9 trillion stimulus plan. If approved, it could include a third stimulus check of up to $1,400 per person, even child and adult dependents. Along with that, House Democrats are readying legislation to provide at least $3,000 per child to millions of American families as part of the proposal, as an update to the Child Tax Credit, The Washington Post reports.
Biden’s proposal and this potential change to the Child Tax Credit aren’t yet law. You may still be able to get more money back, however, under the current version of the credit. At a basic level, the CTC is a credit parents can claim to help reduce their tax bill, depending on the number and ages of their dependents. For many, it may provide a much-needed source of relief as part of a 2020 tax year refund.
Here’s everything you need to know about the CTC, including eligibility requirements for you and your kids, how much it’s worth and Congress’s prospective plans to enhance it.
What exactly is the Child Tax Credit?
The CTC is a $2,000 credit parents can claim on their taxes for every child under the age of 17 (the same age range for child dependents when it comes to the first and second stimulus checks). And if that credit exceeds the amount of taxes that a family actually owes, parents can still receive up to $1,400 of the balance as a refund; this is technically referred to as the “Additional Child Tax Credit” or refundable CTC. For example, a married couple with children ages 5, 10 and 12 would receive a total child tax credit of $6,000 — unless they’re due a refund, in which case they would receive $4,200.
Families with older kids are also eligible: You can claim $500 for each child aged 17 and 18, or full-time college students between the ages of 19 and 24.
Note that although the eligibility requirements are relatively broad, higher-income families may receive a reduced credit. But married couples filing jointly with an adjusted gross income under $400,000 are eligible for the full amount, as are individuals with an AGI under $200,000.
How is the Child Tax Credit related to Biden’s stimulus bill?
Biden’s American Rescue Plan (PDF) called on lawmakers to expand the CTC. The proposal House Democrats are planning to release says that families with children aged 17 and under would receive a credit of $3,000, while those with children under the age of 6 would receive a $3,600 credit, according to the Washington Post.
The size of the credit would start lowering for single people earning more than $75,000 per year, and married couples earning more than $150,000 per year. If approved, the payments would be sent monthly over the course of a year, starting in July.
Biden’s initial plan also called for families to receive a credit for child care. A family with one child could receive a total of up to $4,000 and those with two more children can receive $8,000. This tax credit would be refundable and available to families making less than $125,000 a year. A family with an income of $125,000 to $400,000 will receive a partial credit although the specifics of how much has yet to be announced.
One analysis of the proposal from Columbia University found that it would cut the number of children in poverty by as much as 54%, or about 5 million children. More than 1 million Black children would be lifted out of poverty by the plan, the researchers found, according to the Post.
If the Child Tax Credit is expanded, you could get a monthly check for a year.
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Who wants to expand the Child Tax Credit?
Politicians from both parties have expressed support for expanding the CTC.
On Feb. 4, Sen. Mitt Romney of Massachusetts unveiled his own proposal, which would provide $4,200 per year for every child up to the age of 6, as well as $3,000 per year for every child age 6 to 17. It’s possible that his plan could be combined with that of House Democrats.
Why does this tax credit get so much support? Generally, because when taxes are refunded to families, they tend to spend it. That economic spending is expected to strengthen economic activity.
“Getting money into the hands of lower-income people is a long-standing, time-honored approach for stimulating the economy,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
Republicans first proposed the CTC back in 1997 as part of the Taxpayer Relief Act. And it was Sen. Marco Rubio, a Republican from Florida, who spearheaded the Tax Cuts and Jobs Act of 2017 that doubled the credit from $1,000 to its current amount. Having Democrats pushing for a tax credit Republicans created makes bipartisan support for improving the credit to benefit families more likely.