WASHINGTON — Question:
What's included in the child tax credit for the American Rescue Plan? Who will receive the benefit, and when?
Answer:
The change expands the child tax credit, increasing the payouts to $3,600 for each child under six, and $3,000 for children six to 17. The payments, which are only available to families meeting income requirements, will be distributed on a monthly basis starting as soon as July.
Sources:
- Edward S. Karl, Vice President of Taxation at the American Institute of CPA's
- The American Rescue Plan Act of 2021
Process:
With the passage of the landmark piece of legislation, there are a lot of questions about the $1.9 trillion bill. Among various policy goals, one piece of the bill getting a lot of attention relates to the child tax credit.
The Verify Team spoke with Edward S. Karl, the Vice President of Taxation at the American Institute of CPA's to get to the bottom of some of the biggest questions.
How big is the credit? Who qualifies?
The child tax credit will now be $3,600 per year for each child under the age of six. It will be $3,000 per year for each child between six and 17.
This is a change from the typical child tax credit of past years, which is only $2,000 and excludes 17-year-old children.
The payments will only be available for families that meet the income qualifications. The payments start to phase-out for individuals making $75,000 per year and joint filers making $150,000 per year. After that, the money starts to be phased out at intervals of $50 per every $1,000 of adjusted gross income.
Those making up to $200,000 individually and $400,000 as a couple would still be eligible for the $2,000 tax credit that existed before the passage of the COVID relief bill.
To check whether someone's income qualifies, the IRS will look to the most recent tax returns, said Karl.
“If you’ve already filed your 2020 return -- it would be based on that. If you have not, then it would be based on your 2019 return.”
When will payments arrive?
Struggling families may be wondering when these payments will arrive, so the Verify team brought this question to our economics expert.
"I think they were talking maybe July," said Karl.
At this point, Karl said monthly payments are expected to begin, which would amount to one-twelfth of the total child tax credit. These monthly payments are expected to continue through December.
The remaining portion of the payment would be available as a credit when one does their 2021 taxes.
Turning 18 in 2021? Had a baby in 2021?
The Verify team asked Karl about a series of extenuating circumstances, to find out whether one can expect to collect a check for their child.
First, the Verify team asked about a child that was 17 when a 2020 tax return was filed but has since turned 18. Karl said that it appears parents will get paid for that child.
“It looks like you would benefit from that," he said. "They would not make you pay it back.”
The Verify team also asked about new parents, who had a baby or are expecting a baby in 2021. Karl said that parents should be able to accept payment for the new baby, but not in a monthly payment. Instead, they'll collect the payment as a credit next tax season.
“You could have a baby on Dec. 31," Karl said. "And still qualify for the dependency.”
How Long Will This Last?
This expanded child tax credit is only available through 2021. Congress would have to renew the legislation, to have it continue past that point.