If you have a child under 18, you probably saw a payment from the federal government last week in your bank account.
This is not a scam or a mistake, this is an advance as a part of the child tax credit expansion under the American Rescue plan coronavirus stimulus passed earlier this year.
Parents who make up to $150,000 jointly, or $112,500 filing single (head of the household), will receive monthly payments of $300 ($3,600 per year) per child age 0-5, and $250 (3,000 per year) per child ages 6-17, for the next six months, with the rest payed in sum when they file taxes next year. Families with incomes over the cap will receive reduced credits. The payments do not count as income.
Previously, child tax credits were $2,000 per child age 0-16 and only available in a lump sum at the end of the year when you file your taxes. The new law gives half of the tax credits directly to parents in payments for this year. Parents can opt out of the advance payment and receive the tax credit in a lump sum (you still get the extra money as a part of the expansion) and manage the tax credit payments through the IRS’s website. (Click here)
Even low income families who did not make enough money to be required to file taxes can claim the tax credit, unlike previous years. If you are in this category and have already signed up as a non-filer, the money will be sent to you. In the case you haven’t, you can sign up through the IRS’s non-filer tool. (Click here)
Some people could also earn more than they are entitled to. Since the benefits are distributed based on 2020 income, if a family’s income for 2021 brings them out of a bracket for the benefit the family may end up owing some money at the end of the year. Families can also owe money at the end of the year if a child turns from 5 to 6 in 2021 and collect the credit amounting to $3,600 rather than $3,000, or if they collect credit when a child turns 18 in 2021.
Researchers say the expansion could have big impacts on child poverty. Researchers at Columbia University’s Center on Poverty and Social Policy say the American Rescue Plan, which also included economic stimulus and benefit expansions, is expected to cut child poverty in half.
On Long Island, it’s expected to make a big difference for low and middle class families. Theresa Regnante, the president and chief executive officer of the advocacy group Long Island United Way, said the tax credits will have a large impact on Asset Limited, Income Constrained, Employed (ALICE) households. ALICE households often live paycheck to paycheck and struggle to pay bills, but are too high income to take advantage of state or federal aid programs.
According to an ALICE report by United Way, ALICE and impoverished households made up 34% of households in Suffolk and 29% of households in Nassau during 2018. (Read the full ALICE report here)
“That money would be significant for the household,” Regnante said. “So whether it’s $250 per child, whether you have one, two or three children, that’s going to make a pretty big difference on a monthly basis to really just take care of the needs that are in that household. Whether the needs are rent or utility or mortgages.”
President Biden wants to make the expansion run through 2025 as a part of his proposed American Family plan. Regnante said making the expansion run longer, or even permanent, would be “game changing” for families and help them pay for things like unforeseen expenses like medical treatments.
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