The United States Treasury Department said Monday that 39 million families are set to receive monthly child payments beginning on July 15.
The payments are part of US President Joe Biden’s $1.9 trillion coronavirus relief package, which expanded the child tax credit for one year and made it possible to prepay the benefits on a monthly basis. Nearly 88 percent of children are set to receive the benefits without their parents needing to take any additional action.
Qualified families will receive a payment of up to $300 per month for each child under six and up to $250 per month for children between the ages of six and 17. The child tax credit was previously capped at $2,000 and only paid out to families with income tax obligations after they filed with the Internal Revenue Service (IRS).
But for this year, couples earning $150,000 or less can receive the full payments on the 15th of each month, in most cases by direct deposit. The benefits total $3,600 annually for children under six and $3,000 for those who are older. The IRS will determine eligibility based on the 2019 and 2020 tax years, but people will also be able to update their status through an online portal. The administration is also setting up another online portal for non-filers who might be eligible for the child tax credit.
The president has proposed an extension of the increased child tax credit through 2025 as part of his $1.8 trillion families plan. Outside analysts estimate that the payments could essentially halve child poverty. The expanded credits could cost roughly $100bn a year.
The child tax credit dates back to 1997 and started as a $500 credit designed to provide some tax relief to middle- and upper-middle-income families. Over the years, Congress expanded the size of the credit and made it available to lower-income people, too. In 2017, the maximum credit was raised to $2,000 and income limits were increased to $200,000 for single filers and $400,000 for married couples, after which the credit phases out.
Biden’s American Rescue Plan increases the maximum credit, but not for everybody. The new law adds $1,000 for children ages six to 17 and $1,600 for children under six. But the extra amounts begin to phase out for single filers with adjusted gross incomes over $75,000 and married couples at over $150,000. The credit is reduced $50 for every $1,000 of income over those limits.
Taxpayers who are phased out of the extended credit may still qualify for the original $2,000 credit, although again the credit is reduced $50 for each $1,000 of income over the 2017 income limits.
The new law makes two other important changes. The credit is now fully refundable, which means more families can get money back if their credit amount is more than the tax they owe. Also, half of the credit will be paid out in monthly instalments from July to December. The other half can be claimed on the taxpayer’s 2021 return, to be filed next year.
The IRS will determine if people are eligible for the monthly payments using their 2020 tax returns or, if those haven’t yet been filed, their 2019 returns, says financial planner Robert Westley , a member of the American Institute of CPAs’ Financial Literacy Commission.