People with qualifying children can claim the child tax credit on their federal tax returns to help reduce their tax burden. The child tax credit is reverting for the 2022 tax year.
If you have dependent children under the age of 17, you may qualify for the child tax credit. This partially refundable tax credit can help offset how much you owe in taxes or even provide a refund. You may qualify for a portion of this tax credit even if you don’t owe taxes.
child tax credit
In 2021, the American Rescue Plan Act of 2021 increased the amount of the child tax credit to $3,000 per qualifying dependent. However, this extra boost has now expired, and child tax credit rates for 2022 revert back to the previous level of $2,000 per dependent.
If you think you might be eligible for the child tax credit, keep reading to learn more.
In This Piece
What Is the Child Tax Credit?
The child tax credit is part of the Taxpayer Relief Act of 1997. It’s specifically designed to help reduce the tax liability for parents with dependent children aged 17 and under. As a partially refundable tax credit, it’s possible to receive a refund for this credit, even if you don’t owe taxes or if the amount of the credit exceeds how much you owe in taxes.
Studies show that the combination of the child tax credit and the earned income tax credit helps pull millions of children out of poverty every year. For example, in 2018, this combination helped push 5.5 million children above the poverty level.
To obtain this tax credit, you must list your dependents’ information on Form 1040 and complete Schedule 8812, Credit for Qualifying Children and Other Dependents.
How Much Child Tax Credit Will I Get This Year?
As mentioned above, the child tax rate for 2022 reverts back to the previous level. The maximum child tax credit for 2022 is $2,000 per qualifying dependent. For example, if you have two qualifying dependents, you can earn a tax credit of up to $4,000 ($2,000*2).
If you’re filing as head of household and earn more than $200,000 or filing as married and earn more than $400,000, you may not receive the full amount. If your adjusted gross income (AGI) exceeds these income thresholds, the child tax credit amount slowly starts to phase out. This phaseout rate is $50 per every $1,000 over the income threshold.
For example, if you’re filing head of household and your adjusted gross income is $220,000, your tax credit amount is reduced by $1,000 (($220,000-$200,000)*$50)). This means your tax credit for the year is $1,000 ($2,000-$1,000).
Additionally, the child tax credit is not fully refundable. If your tax liability is lower than your child tax credit, you’re only eligible for a partial credit of $1,500 per qualifying dependent. In the event your earned income is less than $2,500, you may not be eligible for the child tax credit.
If you have dependents between the ages of 17 and 24, you may be eligible for a $500 child tax credit for other dependents. This is a nonrefundable credit, so it can only help reduce your overall tax liability.
How Do I Qualify for a Child Tax Credit?
To be eligible for the child tax credit, you must first have an eligible dependent. This dependent must meet the following conditions:
The child must be under the age of 17.
You must claim this child on your current year’s tax return.
The child must be related to you, such as a child, stepchild, sibling or eligible foster child or a descendant of any of these.
The child must be a U.S. citizen, national or resident alien.
You must provide at least one-half of the financial support for the child.
The child must live with you for at least one-half of the year.
You must also meet income requirements by earning at least $2,500 throughout the year.
Who Is Eligible for the Child Tax Credit?
To be eligible for the child tax credit, you must have a qualifying dependent you claim on your current year taxes and provide more than one-half of their care. You must also earn at least $2,000 during the year.
How to Prepare for Tax Season
If you’re doing your taxes yourself, make sure you take all the eligible child tax credits and tax exemptions. You can also use online tax preparation services to ensure you obtain all the tax credits and deductions you can. This step can help reduce your overall tax liability and even help you earn cash back.
If, after taking all the eligible tax credits and deductions you can, you still owe taxes, you must pay this debt by Tax Day. There are a number of ways you can pay your taxes, including credit and debit cards, cash, check, wire transfer, and even installments.The important things are to make sure you file your taxes on time, take all the tax credits and tax deductions you can and pay any tax liability on time. Once you file your taxes, you can use the government’s track my child tax credit site to find out when you can expect to see these funds.
Children can be incredibly expensive. It’s vital to plan for those new expenses in your household budget.
Once your children are born, there are important long-term safety nets you should implement (e.g. insurance, estate planning, etc)
Thankfully, there are numerous tax breaks available to parents to ease the financial burden of raising kids. Make sure you’re capturing those benefits.
My wife and I are at that stage of life where most of our close friends and family have multiple young children. And in the many conversations we have with those parents, I’ve realized a trend:
Most parents share similar financial questions and concerns.
So let’s provide the best financial tips for new parents.
Big Financial Changes for New Parents
Some financial best practices stay the same before or after children.
But there are many big changes. Let’s start with those.
Insurance Coverage
When you have kids, review your insurance policies to ensure you have adequate coverage. The two that stand out most to me are healthinsurance and life insurance.
Health insurance is important for your family’s well-being. Why?
It provides financial protection against the high costs of medical care, ensures access to necessary healthcare services, helps cover medical expenses and safeguards against unexpected illnesses or accidents that can otherwise result in significant financial burden.
If you can’t cover it with your bank account, you probably need insurance for it.
Life insurance matters because it protects your loved ones financially in case of your untimely death. Specifically, focus on term life insurance. Not whole insurance. Not indexed universal insurance. Term life insurance only! Because life insurance is not a substitute for proper investing (despite what TikTok grifters will tell you).
If you own a home or have a car, appropriate property and auto insurance coverage is also necessary.
Child-Raising and Childcare Costs
Children are expensive!
The Brookings Institute estimated that “the average middle-income family with two children will spend $310,605 to raise a child born in 2015 up to age 17.“
[Part of their estimate included 4% inflation per year. If we crunch the numbers, that’s the equivalent of $16,400 in 2023 dollars every year for 17 straight years]
We can break that down a bit more.
If you need outside childcare, the early years of parenting are likely to be the most financially strenuous. According to Ilumine, the average cost of childcare in the US is just shy of $15,000 per year, or $1,250 per month. And according to Zippia, about 58% of parents rely on childcare so they can continue to work.
Granted, childcare expenses tend to decrease or disappear once your children enter school. But for those first five years, yikes!! $15,000 per year is a huge expense!
Most households cannot lightly absorb such a change in spending. The average American family earns $100,000 per household, taking home $6,000 per month after taxes. $1200 per month on daycare is 20% of that take-home pay!
Education
Start planning for your child’s future education early on.
We wrote a complete breakdown of 529 plans a few years ago. 529 accounts are the gold standard for education savings due to their flexibility and tax advantages. Regular contributions to such accounts can help alleviate the financial burden of higher education expenses later on.
While Coverdell accounts are also education-focused tax-efficient accounts, they are generally suboptimal compared to 529 plans, and should only be used if you are fully maximizing a 529’s potential (e.g. hitting the maximum annual gift tax exclusion of $17,000)
Estate Planning
Consider creating or updating your estate plan once you have kids. Estate planning helps avoid potential conflicts and ensures that the parents’ wishes are followed.
For example, you’ll want to designate legal guardians for your minor children, ensuring they are cared for by trusted individuals if something were to happen to you.
You should also create or update your will to dictate how your assets (financial accounts, property, and personal belongings) should be distributed in case of your untimely death.
Additionally, you might look into setting up trusts to protect and manage assets for the benefit of the children until they reach a certain age or milestone.
Long-Term Financial Goals
You had goals before kids. You still have those goals. But your timelines might have shifted a few years.
It’s essential to set and keep long-term financial goals. This could include saving for retirement, buying a home, or achieving other milestones.
Start contributing to retirement accounts early, take advantage of employer-matched retirement plans, and consider consulting a financial advisor for guidance on long-term investment and planning strategies.
Children & Taxes
Whether you file your own taxes or work with an accountant, make sure you understand and are benefitting from the tax code. Parents typically pay much less in taxes than those without dependent children.
Child Tax Credit: The Child Tax Credit is a tax benefit that reduces the amount of tax owed for eligible parents. As of 2023, the credit is up to $2,000 per qualifying child under the age of 17. The credit is partially refundable, meaning that even if the credit exceeds your tax liability, you may be eligible for a refund.
Earned Income Tax Credit (EITC): The EITC is a refundable tax credit that benefits lower-income working parents (earned income under $59,187). The credit amount increases with the number of qualifying children, and eligibility is based on income and filing status.
Child and Dependent Care Credit: Are you paying for childcare? Parents who pay for childcare expenses in order to work or seek employment may qualify for the Child and Dependent Care Credit. This credit can help offset a portion of eligible childcare expenses, with a maximum credit of up to $3,000 for one child or $6,000 for two or more children.
Education-Related Tax Benefits: As children grow older, there are tax benefits available for education expenses, such as the American Opportunity Credit and the Lifetime Learning Credit. These credits can help offset the costs of higher education and certain qualifying educational expenses.
Long story short – if you’re a parent, you should be paying less tax. Make sure you’re taking advantage. Lord knows you’re paying for it in other places.
Financial Topics That Don’t Change (Much) After Kids
Certain financial priorities and habits shouldn’t change too much after having kids…
Budgeting
My budgeting rule is simple:
You can plan your expenses ahead of time.
You can track them after the fact.
You can do both.
But you can’t do neither.
Personally, I use the YNAB tool. I sit down ~twice per month to review, update, track, and plan ahead.
You can use this link to get 2 months of YNAB for free.
Budgeting is crucial, especially after adding massively expensive children to your family. It helps you track your income and expenses, ensuring you can meet your family’s needs and save for the future. Identify your essential expenses, such as housing, utilities, food, childcare, etc. Here are some ideas for how many budget categories you should have.
Kelly and I are currently moving to a bigger house and talking about having kids. You better believe planning our budget is a huge part of the conversation.
Emergency Fund
While the size of your emergency fund might change after kids, the need for an emergency fund is ever-present.
I’ve written here before…life throws you bitter curveballs. You need to be financially prepared to handle them.
How big should your emergency fund be? Typically in the range of 3-12 months worth of living expenses. The range is all a function of “how re-hireable are you if you lost your job?” If your expertise is in high demand, a 3-month emergency fund might be sufficient. But if you’d rather take your time with an exhaustive job search, you might need a 12-month emergency fund to make ends meet.
This emergency fund money should sit in a bank account, ideally something like a high-yield savings account. You should not invest your emergency fund – here’s why.
Debt Management
Debt can be a silent financial killer. No, Dave Ramsey, it’s not all bad. But you should certainly avoid it if you can…especially if you have little rugrats running around to distract you from paying it off.
Prioritize paying off high-interest debts such as credit card debt or personal loans. Don’t take on unnecessary debt. Establish a plan to become debt-free over time.
The best medicine is prevention. The second-best is decisive action.
Unique Financial Topics Related to Kids
And then there are some unique financial topics that some parents might face.
Special Needs Planning
Parents of children with special needs should consider financial planning specific to their circumstances.
This might include certain government benefits, setting up special needs trusts, and ensuring long-term care and support for their child’s unique needs.
Thankfully, there are fiduciary financial planners who specialize and focus on this very topic.
Digital Management and Identity Protection
In today’s digital age, parents should consider their children’s digital assets, including online accounts, social media profiles, and digital files. As part of estate planning, designating someone to manage or have access to these assets in case of incapacity or death is important to protect and preserve them.
That said, children can be targets of identity theft. Parents should take steps to safeguard their children’s personal information and be vigilant about potential fraud or misuse of their identities.
Other Investing Accounts
We already covered 529 plans. But there are other potential investment opportunities for children that you might want to consider.
Custodial Accounts (UGMA/UTMA): These accounts allow parents to invest directly on behalf of their children, typically with small tax advantages (they are taxed at the child’s tax rate).
Once the children reach their “age of majority” (which is 18 in most states), the children gain full custody of the accounts. For this reason, custodial accounts should be used with caution. It’s pretty easy for $40,000 of UGMA savings to turn into a new Jeep Wrangler.
Roth IRAs for Kids: If a child has earned income, they may be eligible to contribute to a Roth IRA.
Roth IRAs are awesome. Contributions are made with after-tax money but grow tax-free, and qualified withdrawals in retirement are tax-free. Roths are a powerful tool for long-term savings and investing for a child’s future.
But let’s go back: to qualify for a Roth IRA, your children need earned income, and need to be filing taxes on that income. Odd jobs like mowing lawns and babysitting do qualify (as long as the income is reported). And for teens, official W2 summer jobs also qualify.
But kids don’t want to invest! How boring! That’s why generous, forward-thinking parents should consider the following “loop hole”:
Jonny earns $4000 as a lifeguard over the summer.
Let Jonny keep his $4000 for his own spending needs (fun, college savings, whatever…)
The generous parents contribute $4000 to Jonny’s Roth IRA. As long as Jonny reported his income, there’s nothing wrong with this solution.
By the time Jonny is done with college at 22, he might already have $20,000+ of contributions in his Roth IRA. It’s not inconceivable that that amount alone could grow to $300,000+ of tax-free money by the time Jonny retires (7% growth for 40 years).
What a gift!
Time To Graduate
Kids are great.
They’re also expensive.
Hopefully, these financial planning ideas for new parents will help you navigate your parental future!
Thank you for reading! If you enjoyed this article, join 6500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
If you prefer to listen, check out The Best Interest Podcast.
Children can be incredibly expensive. It’s vital to plan for those new expenses in your household budget.
Once your children are born, there are important long-term safety nets you should implement (e.g. insurance, estate planning, etc)
Thankfully, there are numerous tax breaks available to parents to ease the financial burden of raising kids. Make sure you’re capturing those benefits.
My wife and I are at that stage of life where most of our close friends and family have multiple young children. And in the many conversations we have with those parents, I’ve realized a trend:
Most parents share similar financial questions and concerns.
So let’s provide the best financial tips for new parents.
Big Financial Changes for New Parents
Some financial best practices stay the same before or after children.
But there are many big changes. Let’s start with those.
Insurance Coverage
When you have kids, review your insurance policies to ensure you have adequate coverage. The two that stand out most to me are healthinsurance and life insurance.
Health insurance is important for your family’s well-being. Why?
It provides financial protection against the high costs of medical care, ensures access to necessary healthcare services, helps cover medical expenses and safeguards against unexpected illnesses or accidents that can otherwise result in significant financial burden.
If you can’t cover it with your bank account, you probably need insurance for it.
Life insurance matters because it protects your loved ones financially in case of your untimely death. Specifically, focus on term life insurance. Not whole insurance. Not indexed universal insurance. Term life insurance only! Because life insurance is not a substitute for proper investing (despite what TikTok grifters will tell you).
If you own a home or have a car, appropriate property and auto insurance coverage is also necessary.
Child-Raising and Childcare Costs
Children are expensive!
The Brookings Institute estimated that “the average middle-income family with two children will spend $310,605 to raise a child born in 2015 up to age 17.“
[Part of their estimate included 4% inflation per year. If we crunch the numbers, that’s the equivalent of $16,400 in 2023 dollars every year for 17 straight years]
We can break that down a bit more.
If you need outside childcare, the early years of parenting are likely to be the most financially strenuous. According to Ilumine, the average cost of childcare in the US is just shy of $15,000 per year, or $1,250 per month. And according to Zippia, about 58% of parents rely on childcare so they can continue to work.
Granted, childcare expenses tend to decrease or disappear once your children enter school. But for those first five years, yikes!! $15,000 per year is a huge expense!
Most households cannot lightly absorb such a change in spending. The average American family earns $100,000 per household, taking home $6,000 per month after taxes. $1200 per month on daycare is 20% of that take-home pay!
Education
Start planning for your child’s future education early on.
We wrote a complete breakdown of 529 plans a few years ago. 529 accounts are the gold standard for education savings due to their flexibility and tax advantages. Regular contributions to such accounts can help alleviate the financial burden of higher education expenses later on.
While Coverdell accounts are also education-focused tax-efficient accounts, they are generally suboptimal compared to 529 plans, and should only be used if you are fully maximizing a 529’s potential (e.g. hitting the maximum annual gift tax exclusion of $17,000)
Estate Planning
Consider creating or updating your estate plan once you have kids. Estate planning helps avoid potential conflicts and ensures that the parents’ wishes are followed.
For example, you’ll want to designate legal guardians for your minor children, ensuring they are cared for by trusted individuals if something were to happen to you.
You should also create or update your will to dictate how your assets (financial accounts, property, and personal belongings) should be distributed in case of your untimely death.
Additionally, you might look into setting up trusts to protect and manage assets for the benefit of the children until they reach a certain age or milestone.
Long-Term Financial Goals
You had goals before kids. You still have those goals. But your timelines might have shifted a few years.
It’s essential to set and keep long-term financial goals. This could include saving for retirement, buying a home, or achieving other milestones.
Start contributing to retirement accounts early, take advantage of employer-matched retirement plans, and consider consulting a financial advisor for guidance on long-term investment and planning strategies.
Children & Taxes
Whether you file your own taxes or work with an accountant, make sure you understand and are benefitting from the tax code. Parents typically pay much less in taxes than those without dependent children.
Child Tax Credit: The Child Tax Credit is a tax benefit that reduces the amount of tax owed for eligible parents. As of 2023, the credit is up to $2,000 per qualifying child under the age of 17. The credit is partially refundable, meaning that even if the credit exceeds your tax liability, you may be eligible for a refund.
Earned Income Tax Credit (EITC): The EITC is a refundable tax credit that benefits lower-income working parents (earned income under $59,187). The credit amount increases with the number of qualifying children, and eligibility is based on income and filing status.
Child and Dependent Care Credit: Are you paying for childcare? Parents who pay for childcare expenses in order to work or seek employment may qualify for the Child and Dependent Care Credit. This credit can help offset a portion of eligible childcare expenses, with a maximum credit of up to $3,000 for one child or $6,000 for two or more children.
Education-Related Tax Benefits: As children grow older, there are tax benefits available for education expenses, such as the American Opportunity Credit and the Lifetime Learning Credit. These credits can help offset the costs of higher education and certain qualifying educational expenses.
Long story short – if you’re a parent, you should be paying less tax. Make sure you’re taking advantage. Lord knows you’re paying for it in other places.
Financial Topics That Don’t Change (Much) After Kids
Certain financial priorities and habits shouldn’t change too much after having kids…
Budgeting
My budgeting rule is simple:
You can plan your expenses ahead of time.
You can track them after the fact.
You can do both.
But you can’t do neither.
Personally, I use the YNAB tool. I sit down ~twice per month to review, update, track, and plan ahead.
You can use this link to get 2 months of YNAB for free.
Budgeting is crucial, especially after adding massively expensive children to your family. It helps you track your income and expenses, ensuring you can meet your family’s needs and save for the future. Identify your essential expenses, such as housing, utilities, food, childcare, etc. Here are some ideas for how many budget categories you should have.
Kelly and I are currently moving to a bigger house and talking about having kids. You better believe planning our budget is a huge part of the conversation.
Emergency Fund
While the size of your emergency fund might change after kids, the need for an emergency fund is ever-present.
I’ve written here before…life throws you bitter curveballs. You need to be financially prepared to handle them.
How big should your emergency fund be? Typically in the range of 3-12 months worth of living expenses. The range is all a function of “how re-hireable are you if you lost your job?” If your expertise is in high demand, a 3-month emergency fund might be sufficient. But if you’d rather take your time with an exhaustive job search, you might need a 12-month emergency fund to make ends meet.
This emergency fund money should sit in a bank account, ideally something like a high-yield savings account. You should not invest your emergency fund – here’s why.
Debt Management
Debt can be a silent financial killer. No, Dave Ramsey, it’s not all bad. But you should certainly avoid it if you can…especially if you have little rugrats running around to distract you from paying it off.
Prioritize paying off high-interest debts such as credit card debt or personal loans. Don’t take on unnecessary debt. Establish a plan to become debt-free over time.
The best medicine is prevention. The second-best is decisive action.
Unique Financial Topics Related to Kids
And then there are some unique financial topics that some parents might face.
Special Needs Planning
Parents of children with special needs should consider financial planning specific to their circumstances.
This might include certain government benefits, setting up special needs trusts, and ensuring long-term care and support for their child’s unique needs.
Thankfully, there are fiduciary financial planners who specialize and focus on this very topic.
Digital Management and Identity Protection
In today’s digital age, parents should consider their children’s digital assets, including online accounts, social media profiles, and digital files. As part of estate planning, designating someone to manage or have access to these assets in case of incapacity or death is important to protect and preserve them.
That said, children can be targets of identity theft. Parents should take steps to safeguard their children’s personal information and be vigilant about potential fraud or misuse of their identities.
Other Investing Accounts
We already covered 529 plans. But there are other potential investment opportunities for children that you might want to consider.
Custodial Accounts (UGMA/UTMA): These accounts allow parents to invest directly on behalf of their children, typically with small tax advantages (they are taxed at the child’s tax rate).
Once the children reach their “age of majority” (which is 18 in most states), the children gain full custody of the accounts. For this reason, custodial accounts should be used with caution. It’s pretty easy for $40,000 of UGMA savings to turn into a new Jeep Wrangler.
Roth IRAs for Kids: If a child has earned income, they may be eligible to contribute to a Roth IRA.
Roth IRAs are awesome. Contributions are made with after-tax money but grow tax-free, and qualified withdrawals in retirement are tax-free. Roths are a powerful tool for long-term savings and investing for a child’s future.
But let’s go back: to qualify for a Roth IRA, your children need earned income, and need to be filing taxes on that income. Odd jobs like mowing lawns and babysitting do qualify (as long as the income is reported). And for teens, official W2 summer jobs also qualify.
But kids don’t want to invest! How boring! That’s why generous, forward-thinking parents should consider the following “loop hole”:
Jonny earns $4000 as a lifeguard over the summer.
Let Jonny keep his $4000 for his own spending needs (fun, college savings, whatever…)
The generous parents contribute $4000 to Jonny’s Roth IRA. As long as Jonny reported his income, there’s nothing wrong with this solution.
By the time Jonny is done with college at 22, he might already have $20,000+ of contributions in his Roth IRA. It’s not inconceivable that that amount alone could grow to $300,000+ of tax-free money by the time Jonny retires (7% growth for 40 years).
What a gift!
Time To Graduate
Kids are great.
They’re also expensive.
Hopefully, these financial planning ideas for new parents will help you navigate your parental future!
Thank you for reading! If you enjoyed this article, join 6500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.
-Jesse
Want to learn more about The Best Interest’s back story? Read here.
If you prefer to listen, check out The Best Interest Podcast.
Today is April 15th, and it appears that economic impact payments passed as part of the CARES Act, also known as 2020 stimulus checks, are now being direct deposited into people’s accounts.
If you haven’t received your stimulus direct deposit yet, and you did not file your 2018 or 2019 taxes, you may need to go to the government site for “non-filers” and enter your payment information.
Also, if you did file you can go to the “Get My Payment” page via the same link, and check your payment status, confirm your payment type and enter your bank account information for direct deposit if the IRS doesn’t have your direct deposit information. While the portal was buggy at first, the IRS updates to taxpayer data have improved things.
For most people the coronavirus stimulus checks are sorely needed with millions of new people filing for unemployment in the past few weeks due to the COVID-19 pandemic.
It is estimated that the 4 week total for unemployment claims will top 22 million, roughly one in eight in the workforce.
If you’re out of work due to a layoff, furlough or other reason it’s important to file for unemployment insurance right away, and then to look into making sure you’ve done everything you need to in order to claim your first stimulus check.
With individuals able to claim a $1,200 payment, and couples collecting $2,400, the money should help plug some holes. If couples have eligible children under 17 they can also collect $500 per child.
A hypothetical family of 4 (like ours!) would be able to collect an economic impact payment of $3400.
With the stimulus payments starting to go out today, people are already starting to talk about a possible second stimulus check.
Today we’ll explore what people received for the first stimulus payment, who was eligible to receive it. Then, we’ll explore the following question:
Will there be a second stimulus check for 2020?
The “In Case Of Emergency Binder” is over 90 pages of simple, printable worksheets to organize everything your family may need to know in the event of an emergency, like the current one. Learn More about the ICE Binder.
The First 2020 Stimulus Check Details
As the COVID-19 virus began to spread it was clear that extraordinary measures would need to be taken in order to give help to states, businesses, the health care industry and to individual taxpayers.
To date we’ve had 3 coronavirus aid packages passed by Congress and signed into law by President Trump.
Coronavirus Aid Package – Phase 1: This $8 billion package passed in March included emergency spending to boost funding for testing of the virus, money to help pay for vaccines and help fund costs of medical expenses related to the virus.
Coronavirus Aid Package – Phase 2: Phase two was signed into law in mid-March and included $100 billion in paid sick and family leave protections, free testing for many, expansions of unemployment assistance and more.
Coronavirus Aid Package – Phase 3: The third phase of coronavirus aid, the Coronavirus Aid, Relief and Economic Security (CARES) Act, was signed into law at the end of March. It is a $2.2 trillion stimulus package designed to give direct payments to individuals and small businesses in order to help during this extended mandatory shutdown. It also expands on existing unemployment insurance benefits giving an additional 13 weeks of unemployment, and a bump in maximum weekly benefits of $600 through 7/31/20. It also gives unemployment benefits to some who typically don’t receive them, gig workers and self-employed individuals.
Who Is Eligible For The First Stimulus Check?
With the first stimulus checks being sent out let’s examine all of the details about who gets them.
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First of all, who is eligible to receive the first stimulus payment?
Just about anyone that has a Social Security Number and who isn’t claimed as a dependent on someone else’s return. They just have to make less than the income phaseout range to earn the full refundable tax credit.
Individual taxpayers get a $1,200 payment.
Couples get $2,400.
If you have a qualifying child based on the same criteria as the Child Tax Credit (16 and under on 12/31/2020) you’ll get an additional $500 for each child.
Once taxpayers reach an adjusted gross income threshold of $75,000 ($150,000 couple) the refundable tax credit begins to phase out at a rate of $5 for every additional $100 above the limit. Once income reaches the level of $99,000 ($198,000 couple), the credit is phased out completely.
The income range is determined from your 2019 taxes. If you haven’t filed yet for 2019, your 2018 tax returns will be used.
If you qualify for the payment based on your 2018 return, but not your 2019 return, you may want to hold off on filing 2019 because you may be able to receive the payment. From what they’re saying economic impact payments will not be clawed back if people don’t qualify based on their final 2020 taxes.
So let’s look at a few of hypothetical scenarios:
Example 1: A couple files taxes married filing jointly and has 2 children under 10 years of age. They make $140,000 in income. They would get $2,400 for filing jointly as a couple, and then $500 for each child, for a total of $3,400.
Example 2: A couple files taxes married filing jointly and has one child 14 years of age, and one 17 years of age. They make $70,000 in income. They would get $2,400 for filing jointly as a couple, $500 for the 14 year old child, and nothing for the 17 year old since they are over 16 years old. They would receive a total of $2,900.
Example 3: An individual files taxes as a single person and has no children. They make $92,000 in income. They would get a reduced stimulus payment since their income is $17,000 over the $75,000 threshold, but under the $99,000 cutoff. The individual would receive a total of $350. ($1,200-$850 reduction).
Example 4: A couple files taxes married filing jointly and has one child 17 years of age, and one at 21 years of age. Both are still claimed as dependents. The couple makes $199,000 in income. They would get $0 for filing jointly as a couple since they’re over the income phaseout limit, and then $0 for the children since they’re both over 16 years of age. The two children cannot claim their own individual stimulus payment either since they are claimed as dependents on their parents tax returns. The entire family would receive no stimulus payment.
There are a thousand different possible scenarios. The key is to figure out where you fall with your adjusted gross income as an individual or family, calculate if you can claim your kids for the extra $500 based on their age.
For a more in depth discussion of who is and isn’t eligible, please see our full post on the 2020 stimulus check.
Is There Going To Be A Second Stimulus Check For 2020?
On or around April 15th the economic impact payments included as part of phase three of the coronavirus aid packages started to be deposited into taxpayer accounts. Here’s one from another publisher below.
Checks will start to go out in following weeks, with checks going to those with lower income first.
Ever since the CARES Act passed and was signed into law on March 27th, there has been quite a bit of talk that one round of stimulus payments for individuals and business might not be enough.
From the Wall Street Journal:
As lawmakers last week completed a record-shattering economic-rescue package estimated at $2 trillion, Senate Minority Leader Chuck Schumer (D., N.Y.) predicted: “This is certainly not the end of our work here in Congress—rather the end of the beginning.”
Legislators from both parties, administration officials, economists, think tanks and lobbyists are already roughing out the contours of yet another emergency-spending package—perhaps larger than the last—to try to keep the coronavirus crisis from turning into a 21st-century Great Depression. Many expect the debate to begin in earnest by late April.
The article talks about how in the week after the phase 3 stimulus package was passed, that they were already talking about extending the stimulus/aid package into a phase 4 aid package. Among the things they floated that they’d like to include:
More money to shore up state government budgets.
Extension of unemployment benefits from the phase 3 package to make the benefits last even longer.
Funds to increase testing and supplies for testing and other healthcare spending.
Plugging holes in the phase 3 bill (Giving benefits to those who should have received them but didn’t).
Hazard pay for essential workers.
Possible additional stimulus payments.
All of this is hypothetical at this stage, and lawmakers made clear that they want to give the phase 3 plan time to work so that they know better what type of additional measures might be necessary to give our economy a boost.
One question hanging over what is already being called “Phase Four” is whether that spirit of urgency and compromise can continue as the downturn advances. Or, will Washington return to the polarization that has often paralyzed Congress in recent years—especially as the November elections erode incentives for cross-party cooperation?
Another concern: Legislating amid travel restrictions and the risk that more in Congress come down with the disease.
Policy makers and economists will need to assess in coming weeks whether the most recent package does enough to tide over companies and workers through the end of the shutdown—whenever that occurs—or whether prolonged closures require another dosage of the same medicine.
President Trump has mentioned that they are now considering a second round of stimulus payments. Congressional leaders and President Trump have stated publicly that another recovery package might be necessary.
Even before Americans get to cash in their stimulus payments, President Donald Trump is floating the idea of a second round. At Monday’s news briefing, Trump said a second set of direct payments is under consideration to help blunt the economic impact of the coronavirus pandemic.
“We could very well do a second round,” Trump said. “It is absolutely under serious consideration.”
In a later tweet Trump signaled something else for phase 4.
In a tweet, Trump said infrastructure should be the focal point of the phase-four stimulus package. Aid to healthcare and broadband infrastructure will likely get bipartisan support in Congress, according to The Hill.
House Speaker Pelosi has said she would like direct payments to be a part of a second round.
Pelosi has said that another stimulus should include a second round of direct payments. This month, many Americans taxpayers received stimulus checks of up to $1,200 for single filers and up to $2,400 for married couples. But many congressional Democrats have said that the $1,200 check, which barely covers what the average American spends on rent and utilities, doesn’t go far enough. Pelosi’s plan would also give more aid to states, cities, small businesses, health systems, and first responders, Politico reported.ABC News reported that Pelosi hoped to bring the phase-four stimulus package to the House floor in late April.
At this point both Democrats and Republicans have brought measures to Congress to supply an additional $250 billion in small business funding to shore up measures from phase 3, but both competing measures have failed.
Possible Second Round Of Stimulus Checks
This past week we have seen several competing proposals for additional stimulus payments in Congress.
A group of 62 members of Congress, Senator Kamala Harris, Senator Bernie Sanders and Representative Alexandria Ocasio-Cortez among them, have urged Senate and House leaders to make the stimulus payments a monthly occurrence.
Representatives Ro Khanna and Tim Ryan, Democrats from California and Ohio respectively, have proposed recurring stimulus payments of $2,000 per month for at least 6 months, along with $500 per child up to 3 children. To be eligible you would have to earn less than $130,000 as a single filer, or $260,000 as a married couple. Taxpayers 16 and older would be eligible.
Republican Senator Josh Hawley has proposed the federal government cover 80% of wages for workers at any U.S. business up to the national median wage, until the crisis ends.
Senate Democrats have proposed a “heroes fund” to give a $25,000 pay increase to so called “essential workers”, health care workers, grocery clerks and delivery drivers among others. They also proposed a $15,000 bonus to recruit new essential workers.
At this point the very earliest we would likely see details of any concrete phase 4 plan would be after Congress returns to the Capitol on May 4th.
So for now, take advantage of your stimulus check from the first round, and stay tuned for details on a phase 4 stimulus package.
We’ll update here as to what ends up passing (if anything), and let everyone know if there will be additional direct stimulus payments to taxpayers.
In the meantime, what would you do with the money if you received a second stimulus check? Have you received the first stimulus yet? Tell us in the comments.
Create Your Own Income Stimulus Package
While we’re waiting to hear about whether there is going to be another stimulus, it might not be a bad idea to start creating your own stimulus package of sorts. Every little bit of income helps right now.
Here’s a few posts that talk about ways to make some extra money in the midst of the downturn.
New York state income tax rates are 4%, 4.5%, 5.25%, 5.9%, 5.97%, 6.33%, 6.85%, 9.65%, 10.3% and 10.9%. New York state income tax brackets and income tax rates depend onâ¦
A couple of Democratic Party Congressmen have introduced a new tax bill called the âFirst-Time Homebuyer Actâ that will, if passed, provide a tax credit for first-time home buyers of up to 10% of the purchase price of their new home, or $15,000. The bill, proposed by representatives Earl Blumenauer (D-OR) and Rep. Jimmy Panetta, […]
The post Democrats introduce 15K first-time homebuyer tax bill appeared first on RealtyBizNews: Real Estate Marketing & Beyond.
Wondering if you made enough money to file taxes this year? It depends on more than just your income, you may be surprised to learn. And even if you donât have to file taxes, itâs often a good idea to do so anyway. Here, youâll learn what you need to know about tax-filing requirements based […]
The post How Much Do You Have to Make to File Taxes? appeared first on SoFi.
You buy organic at the local farmers market, hunt for the fair-trade label while perusing store aisles, and dabble in impact investing. So naturally, your eco-conscious preferences might also have you leaning toward a sustainable home. Maybe youâve always longed for a home with solar panels, bamboo flooring, or a grey water irrigation system. But
The post How To Budget For An Eco-Friendly House appeared first on MintLife Blog.
The homebuyer tax credit closing deadline has been extended until September 30th, 2010 for those who were under contract by April 30th, 2010. Details here. If you’re a first time homebuyer and you thought that you might be out of time when it came to getting the $8000 refundable tax credit, think again! On Friday […]
