Third stimulus check: What will be the maximum payment, could it be higher than $1400?
The American Rescue Plan includes several new tax provisions that could bring millions of families more than just a one-time $1,400 direct stimulus payment.
The House of Representatives will take up President Joe Biden’s $1.9 trillion covid-19 relief bill on Wednesday. The vote in the lower chamber, if all goes accordingly, will be the final hurdle before the sweeping legislation lands on Biden’s desk. In the covid-19 relief package are tax provisions for families in 2021 that could bring a boost to household incomes.
One measure in the bill that will aid the finances of a large swathe of the country is a $1,400 tax rebate per person, paid in advance. These direct stimulus payments could begin showing up in bank accounts before the end of the month. But another provision would give families further tax credit for children. Biden’s American Rescue Plan will expand the child tax credit up to $3,600 per child.
What is the Child Tax Credit?
If the coronavirus relief package is approved and signed into law, families could see a substantial expansion of the child tax credit of up to $3,600 per child under 6 and $3,000 per child under 18 for 2021. The provision in the bill is temporary but the intention is to make the proposal permanent later this year.
The enhanced child credit would become fully refundable so families will receive the credit even if they paid less in taxes than the total of the credit. Furthermore, the bill calls for the IRS to pay half of the tax credit in advance to families, just like the $1,400 stimulus checks. The payments would go out monthly starting in July.
So a family could see $300 per child under 6 and $250 per child under 18 per month from July until December in 2021. The other half of the credit would be a refundable credit that taxpayers could claim on their 2021 income-tax filing in 2022.
The bill calls for the payments to be made monthly but the language allows for the Secretary of the Treasury, Janet Yellen, to determine if monthly payments are feasible for the IRS to make. The legislation also calls for the creation of an online portal for families to change their status as their financial or family situation changes. This would also allow families to opt to receive the credit in a lump sum when they file their income-tax return in 2022.
Who will be eligible for the enhanced child tax credit?
The provision in the covid-19 relief bill increases the number of households that qualify for the child tax credit. The current earnings floor whereby a family must earn a minimum of $2,500 per year to even qualify for the child tax credit would be removed for 2021.
The bill would set a cap to receive the maximum amount at $75,000 annual adjusted gross income (AGI) 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 AGI over $200,000, for joint filers AGI over $400,000.
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