Now that Joe Biden is president, battling the coronavirus and shoring up the economy is his first priority. His American Rescue Plan, a $1.9 trillion stimulus relief proposal, is aiming to do just that. One element in the plan that would provide a financial boost to most families is Biden’s proposal to temporarily increase the child tax credit and to make it fully refundable.
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Current Child Tax Credit
Presently, the child tax credit is worth $2,000 per kid under the age of 17 who you claim as a dependent and who has a Social Security number. To qualify, the child must be related to you and generally live with you for at least six months during the year. The credit begins to phase out if your adjusted gross income is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return.
Up to $1,400 of the child credit is refundable for some lower-income Americans with children, but these people must also have earned income of at least $2,500 to get a refund.
Biden’s $3,000 (or $3,600) Child Credit Proposal
The president’s American Rescue Plan would expand the child credit for one year in three ways. First, it would increase the credit to $3,000 per child ($3,600 for a child under age 6). Second, it would make the credit fully refundable and remove the $2,500 earnings floor. Third, it would allow 17-year-old children to qualify for the child tax credit, which is good news for parents of high school juniors and some seniors.
Some Democrats want the child tax credit to be paid in advance. They’re calling for the IRS to send monthly payments to families of $250 per child ($300 per child under age 6). That would be a nice windfall for many families. Take a family of five with children ages 14, 11 and 5. Assuming the family qualifies for both the child credit and for the advance payments, they would get $800 per month in 2021 under this proposal.
We don’t know Biden’s stance on advance payments of the child credit. But even if he does support the idea, we think the odds of it actually becoming law are slim. The measure is costly, it might be seen as an unnecessary and messy entitlement program, and it will be an uphill battle to get enough Republicans on board with it. Chances are a bit better for a one-year expansion of the child tax credit without the advance payments.
Source: kiplinger.com