Third stimulus check: are children born in 2021 included?

The American Rescue Plan, the $1.9 trillion covid-19 relief bill, passed by Democrats in March will provide parents of a newborn with an additional bit of joy, a $1,400 tax credit when they file their income tax return in 2022. Eligible Americans are already beginning to see direct stimulus payments show up in their bank accounts with the IRS releasing the first wave of payments 17 March.

Although the third round of Economic Impact Payments were more targeted than the previous two rounds any American earning up to $75,000 annually and couples making up to $150,000 will receive the full $1,400 per person, including children. Individuals and couples earning above that amount could receive a partial payment but the phase out limit is much lower than before, with payments capped for individuals earning $80,000 and couples making $160,000.

How do I claim the $1,400 for my newborn?

As with the CARES Act and the covid-19 relief bill passed in December, which had a provision for parents of newborns in 2020 to collect a stimulus payment for their baby, any person who gives birth in 2021 could receive an additional $1,400 check for their baby. Parents of newborn children in 2021 will have to wait until they file their income tax returns in 2022 to get the $1,400 payment for their child.

For those filing their tax returns this year they can use the Recovery Rebate Credit to claim any unpaid stimulus money from the previous rounds of EIP. New parents in 2021 can expect to do the same in 2022 but there are additional provisions in the American Rescue Plan for parents to take advantage of. The legislation also provides enhanced Child Tax Credit for parents with children for the 2021 fiscal year.

Expanded 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 has been removed for 2021. The bill sets 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 phases out incrementally.

For families under the income threshold, they can receive a tax credit for the full $3,600 per child under 6 and/or $3,000 per child under 18. The American Rescue Plan Act calls for half the amount to be paid out in direct payments, similar to how the $1,400 stimulus checks in the same bill. The provision calls for the payments to go out monthly starting 1 July, through December. The remainder, $1,800/$1,500, would be available to families as a rebate when they file their 2021 income-tax filing in 2022.

Payments may be paid at longer intervals, it is up to the Secretary of the Treasury, Janet Yellen, to determine if monthly payments are feasible for the IRS to make. However, families could also opt to receive the credit in a lump sum when they file their income-tax return in 2022. The agency will also be tasked with setting up an online portal to allow families to change their status as their financial or family situation changes.