$3,000/$3,600 child tax credit: who would be eligible?
New US President Joe Biden announced his American Rescue Plan, which included a $1.9tn coronavirus relief package. And in that eligible families get an improved tax credit.
President Joe Biden got straight to work as the new US leader following his inauguration on 6 January. A flurry of executive orders had his Oval Office signature of approval in the first few days and as part of a $1.9tn American Rescue Plan (ARP), he has called for families to receive an increased child tax credit of up to $3,600 per dependent.
With Americans still asking questions about when they are likely to see the third round of stimulus checks arrive, they are also keen to understand who will be eligible for this extended credit and how they will benefit from it.
Tax credit: what is it?
Before we look at the specific credit of the ARP, let us briefly clarify what it is. Very simply, a tax credit is a sum of money that can be subtracted from the amount of tax owed to a country's inland revenue.
It can be either refundable, allowing you to claim the full credit even if it is more than your tax bill, or non-refundable, which limits what you get to no more than the tax you owe.
Obviously this type of credit only applies to taxpayers.
$3,000/$3,600 child tax credit: eligible families
Under Biden’s plan, qualifying households would get a credit of $3,000 a year for every child aged between six and 17, and $3,600 for every child under six. The scheme would last for 12 months.
Among the other economic-aid measures for Americans proposed by the ARP is a stimulus check of up to $1,400, a $400 weekly unemployment-benefits boost and an increase of the national minimum wage to $15 an hour.
A key aspect of the child tax credit in Biden's proposed package is that it would be refundable, so claimants would receive the $3,000/$3,600 in full even if they pay less in taxes.
The ARP, and the child tax credit it proposes, is not yet law; negotiations between Democrats and Republicans are expected in a bid to agree a bipartisan stimulus package, with experts predicting a bill will be passed by Congress by March.
New child tax credit vs current child tax credit
Currently, an individual parent on an annual salary of less than $200,000 and married parents on less than $400,000 are able to claim a child tax credit of $2,000 per year for children under 17 years of age. An exception is if that amount is more than the tax they owe, in which case they can seek an alternative credit of up to $1,400.
Families with earnings higher than the maximum income threshold receive a reduced amount; the planned upper limits for the ARP's expanded child tax credit do not appear to have been confirmed, but it is expected that they would be similar or identical.
More information can found on the IRS official website for current child tax credit.
Eligible children could rise by 27 million
According to the Center on Budget and Policy Priorities (CBPP), making the $3,000/$3,600 child tax credit fully refundable would see 27 million more children qualify for the payment, having missed out on the present credit because they belong to low-earning families who do not pay enough tax.
The CBPP adds that the move would lift more than three million people in the US, including two million children, over the poverty line.
Lawmakers also looking to make it permanent
According to a report in the Washington Post on Friday, Democratic lawmakers are also working to make the proposed $3,000/$3,600 child tax credit a permanent scheme, rather than the temporary measure set out in the ARP.
Democrats also want families to receive the expanded child credit in direct monthly payments of $250/$300, rather than having to wait until the end of the tax year to claim a lump sum from the IRS, the Post adds.
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