Although many Americans are anxiously awaiting the latest $1,400 stimulus payment, it's families who stand to gain the greatest amount of financial assistance through the American Rescue Plan Act.
The latest $1.9 trillion Covid-19 relief package expands and enhances the child tax credit. Under the new provisions, families are set to receive a $3,000 annual benefit per child ages 6 to 17 and $3,600 per child under 6 in the tax year 2021.
The credit will be fully refundable. Right now, if taxpayers' credit exceeds their taxes owed, they only can get up to $1,400 as a refund. Under the new rules, they could receive the full $3,000 or $3,600 per child, depending on the child's age.
The new enhanced benefits, which specifically cover teens who are 17 for the first time, are income-based and would start to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly.
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Families who are ineligible for the new $3,000 credit because they earn higher adjusted gross income are still able to claim the $2,000 per child tax credit, which is available to those making up to $200,000 ($400,000 for married couples filing jointly).
To help estimate how much families stand to gain under these new rules, personal finance website Grow created a calculator to do the math for you.
If you are eligible for the new credit, you could start getting payments as early as this summer. The IRS could start providing advances on the 2021 credit through periodic payments of $250 for school-aged children starting as early as July 2021, depending on what the Treasury Department determines is workable. Under the proposed schedule, which could be as frequent as monthly, families could receive half of their total 2021 child tax credit this year and claim the remaining amount on their 2021 tax returns.
With this update, approximately 4.1 million children under 18 will be directly affected and lifted out of poverty and another 5.75 million children will move closer to the poverty line, according to calculations from the Center on Budget and Policy Priorities. Overall, about 27 million children, whether they're currently living in poverty or not, will benefit in some way from the credit becoming fully refundable.
The American Rescue Plan only guarantees the increase for the 2021 tax year. But some Democrats, including Senators Sherrod Brown (D-Ohio) and Michael Bennett (D-Colo.) aim to push Congress to make the increased child tax credit permanent.