How much money is provided by the 2021 Child Tax Credit and how many payments?
On Thursday the IRS will begin sending out monthly payments as part of the new child support programme, but how long will the tax relief last for?
On Thursday 15 July the IRS will finally begin sending out money as part of the new-look Child Tax Credit, the broad new programme providing monthly direct payments for families.
The change is a result of the American Rescue Plan, which was signed into law back in March, but it took the tax authority fourth months to prepare the new payment system. There is great optimism amongst Democrats in Congress about the impact that the programme could have. Sen. Cory Booker described it as “the most transformative policy coming out of Washington since the days of F.D.R."
He added: “America is dramatically behind its industrial peers in investing in our children. We have some of the highest child poverty rates, but even families that are not poor are struggling, as the cost of raising children goes higher and higher.”
How much is the new Child Tax Credit worth to American families?
In the past the Child Tax Credit provided just a single end-of-year tax credit worth a maximum of $2,000 per child, but the new programme is far more generous.
From 15 July, eligible families will receive up to $300 per month for every child under the age of six, and up to $250 per month for children aged between six and 17. These categories relate to the age of the child on 31 December 2021.
As was the case with the three rounds of stimulus checks, eligibility for the financial support will largely be based on the household’s adjusted gross income (AGI). Families will receive the full entitlement if their AGI is less than $75,000 for a single filer; less than $112,500 for a head of household; and no more than $150,000 for married couples who file jointly. Above those limits, the size of payment on offer will gradually decrease.
How many payments are included in the new Child Tax Credit?
Perhaps the biggest change introduced by the new Child Tax Credit is the payment process, which will now see parents receive the money on a monthly basis. However the programme is still technically a tax credit so that process is not entirely straight-forward.
For the first six months the support will come in the form of a monthly payment, with the rest to be redeemed as a single tax credit at the end of the year. This credit can either be used to reduce your outstanding tax balance or to be added to a tax refund.
For now, this is all we know for sure about the ongoing payment structure because Congress has only approved the first year so far. However President Biden is desperate to secure an extension to the programme and has included it as ‘human infrastructure’ in his $4.1 trillion budget proposal currently awaiting Congressional approval.