Democrats will unveil a bill that would provide up to $3,600 per child to families for one year. Unlike the current child tax credit, you can claim it on your federal income tax return. This credit would be made payable by the Internal Revenue Service (IRS) over one year to eligible taxpayers.
Here is what you need to know.
What is the child tax credit?
The child tax credit has helped millions of Americans with the cost of raising children. Enacted in 1997, the credit was established through the Taxpayer Relief Act. If you claim a child as a dependent, you may qualify up to $2,000 per child. It is currently available to children under the age of 17 years of age. Also, taxpayers who have incomes less than $200,000 (single) and $400,000 (married filing jointly) qualify for the full tax credit.
What does this bill propose?
This tax proposal would be a part of President Biden’s Covid-19 $1.9 trillion bill, which seeks to provide financial aid, a third stimulus check and additional unemployment benefits, to name a few. This bill would increase the child tax credit as follows:
- Increase the current child tax credit from $2,000 to $3,000 for children 6 to 17 years of age
- Increase the current child tax credit from $2,000 to $3,600 for children under the age of 6 years of age
How will payments differ from the current credit tax credit?
Payments will be different because, unlike the current child tax credit, which is claimed on the tax return and typically paid out through a refund (or reduce your taxes), taxpayers would have the option to receive the money throughout the year in monthly payments.
For instance, if you have a five-year-old child, you can expect a payment of $300 per month in the form of the child tax credit.
When can you expect to receive the payments?
If the measure becomes law, individuals can expect to start seeing payments as early as July of this year. Keep in mind that this measure would be a part of the Covid-19 package. Biden’s administration has indicated that it would pass this bill with or without the support of Republicans.
So we can expect that this measure will pass if the Democrats continue to move forward with the budget reconciliation process – which allows them to pass the bill without the Republican’s support.
Kemberley Washington, CPA is an author, owner of Washington CPA Services, LLC and writer for Forbes Advisor. You can follow her at @kemcents!