AMERICAN RESCUE PLAN

$3600 Child Tax Credit: how's the current negotiation for it?

House Democrats have released the full text of the $1.9 trillion stimulus bill Including a provision to enhance the Child Tax Credit. What’s in the bill?

$3600 Child Tax Credit: how's the current negotiation for it?
TASOS KATOPODIS AFP

President’s Biden’s first major piece of legislation is being set up for a vote in the House before the end of next week with Democrats releasing their vision of the American Rescue Plan. The text of the House bill aligns closely to the framework set out by the White House.

The new bill includes an increase in the federal minimum wage to $15 per hour, an extension of $400 federal unemployment benefits, more money for small businesses barely staying above water in the pandemic and the highly expected $1,400 stimulus checks for Americans making $75,000 or less a year. Also included in the bill is a provision to for enhanced Child Tax Credit that could see American families receiving up to $300 per child per month beginning in July.

$3,600/$3,000 Child Tax Credit provisions

The bill as it stands follows the proposals laid out by the Ways and Means Committee last week. In addition to expanding the amount of the credit, lower-income families will now be eligible for the enhanced child credit that previously weren’t. It also raises the age of dependents that can be claimed under the child tax credit to 17. The enhanced child credit provision is currently temporary, and will be applied to the 2021 fiscal year, with stipulated periodic direct payments.

Direct payments under the Child Tax Credit

To provide families with more stability over the course of the year the legislation calls on the Treasury, via the IRS, to disburse payments on a monthly basis beginning 1 July. However, in the bill Secretary Yellen will have the discretion to decide if the payments are paid at longer intervals stating “such payments shall be made on the basis of the shortest interval which the Secretary determines is administratively feasible.”

Half the enhanced child credit would be paid in advance via monthly direct payments of $250 and $300 per child under 18 and under 6, respectively, to families for 6 months through December. The remainder of the $3,600 and $3000 child tax credit due could then be claimed on taxpayers' filings in 2022 for the 2021 fiscal year. Families can also chose to claim the credit in a lump sum when they file their 2021 tax return in 2022.

beneficiaries can change their status

The legislation is also calling for the creation of an online portal where beneficiaries could change their status as their financial or family situation changes. Since the payments would go out in advance based on a taxpayer's previous income-tax filing there are worries that taxpayers would be penalized after the fact.

To alleviate this worry, the legislation creates a “safe harbor” provision, whereby parents who are mistakenly sent the benefit will not be penalized if their adjusted gross income doesn’t exceed 200 percent of the threshold. Should their family or economic situation change making them ineligible they would not be made to pay back the money at the end of the year.

Eligibility for the $3,600/$3,000 Child Tax Credit

In their proposal to increase the number of households that qualify for the child tax credit, Democrats on the House Ways & Means Committee removed the current earnings floor whereby a family must earn a minimum of $2,500 per year to even qualify for the child tax credit. The proposal also makes the enhanced child credit fully refundable instead of a maximum refund of $1,400.

The bill would set a cap to receive the maximum amount at $75,000 annual adjusted gross income for individual taxpayers, $150,000 for joint filers and $112,500 for head of household. Above that threshold the benefit would phase out incrementally. After the phase out point for the enhanced child tax credit, the current child tax credit of $2,000 would apply with the size of the benefit starting to phase out for individual taxpayers with an annual adjusted gross income over $200,000.

Will the bill pass the House

Democrats have a slim majority to pass the bill, they can only lose perhaps four members. Representative Katie Porter, along with 19 other representatives signed a letter calling for the removal of the single parent penalty.

Meanwhile Republican leaders have already begun urging their members to vote against it. On Friday, House Minority Whip Steve Scalise told GOP representatives in an email to vote "no" on what his office called House Speaker Nancy Pelosi's "Payoff to Progressives Act."

Once the House passes the legislation, it will next go to the Senate which is evenly split 50-50. It is expected the bill will have to change in order to accommodate the rules for budget reconciliation, which the Democrats are using to pass the bill with a simple 51-vote majority, relying on their 50 senators plus Vice President Kamala Harris casting the tiebreaking vote.

Pelosi has said she expects to have the bill on President Biden’s desk before pandemic unemployment benefits run out on 14 March.