Coronavirus and Your Money

House Democrats Propose Monthly Payments of Up to $300 Per Child

A bill in Congress would increase the child tax credit and have 50% of it paid in advance by the IRS from July through December.

Child poverty is an increasingly growing problem in our country and has become worse because of the coronavirus pandemic. As a result, lawmakers in D.C. are looking at solutions to help combat child poverty, including utilizing the federal tax code. One idea that is getting lots of attention lately is expanding the child tax credit by increasing it, making it fully refundable for more Americans, and having the refundable portion paid in advance through monthly payments to families.

Presently, the child tax credit is worth $2,000 per kid under the age of 17 whom you claim as a dependent and who has a Social Security number. To qualify, the child must be related to you and generally live with you for at least six months during the year. The credit begins to phase out if your adjusted gross income is above $400,000 on a joint return, or over $200,000 on a single or head-of-household return. Up to $1,400 of the child credit is refundable for some lower-income individuals with children, but these people must have also earned income of at least $2,500 to get a refund.

President Biden's $1.9 trillion American Rescue Plan to help stimulate the economy includes a provision to temporarily expand the child tax credit for one year. He wants to increase the credit to $3,000 per child ($3,600 for a child under age 6), make it fully refundable, remove the $2,500 earnings floor, and allow 17-year-old children to qualify. Biden's plan does not specifically call for advance monthly payments of the expanded credit.

[Stay on top of all the new stimulus bill developments – Sign up for the Kiplinger Today E-Newsletter. It's FREE!]

House Democrats' Plan for Temporary Monthly Payments

Democrats on the House Ways & Means Committee, the tax-writing committee in the lower chamber that is crafting legislation for Biden's stimulus proposal, have now unveiled their idea to expand the child credit for one year. Not surprisingly, their package is similar to Biden's. For 2021, they would increase the credit to $3,000 per child ($3,600 for a child under age 6), make it fully refundable and let 17-year-olds qualify.

These Democratic lawmakers also want the IRS to send monthly payments from July through December to many families equal to half of their eligible child tax credit. This would amount to payments of $250 per child ($300 per child under age 6) for six months and would be a nice windfall for many families. Take a family of five with children ages 14, 11 and 5. Assuming the family qualifies for both the increased child credit and for the advance payments, they would get $800 per month from the IRS from July through December, for a total of $4,800. They would then claim the additional $4,800 in child tax credits when they file their 2021 return next year.

The proposal would require the IRS to start making the payments to eligible Americans in July, giving the agency just a few months' lead time to set up its computer systems to handle such a massive, but temporary, new payment program. It also calls for the IRS to develop an online portal so that individuals could update their income, marital status, and the number of qualifying children. People who want to opt out of the advance payments and instead take the full child credit on their 2021 return can do so through the portal. Although House Democrats want the IRS to send payments monthly, they are giving the agency a bit of leeway, saying that the IRS could, if needed, make advance payments less often than monthly, for example, every two months.

Phase Out for Wealthier Parents

Not all families with children would get the higher child credit or the advance payments. The enhanced tax break would begin to phase out at adjusted gross incomes of $75,000 on single returns, $112,500 on head-of-household returns and $150,000 on joint returns. Under the proposal, the IRS would look to prior-year tax returns to determine eligibility for the monthly payments. If a 2020 return has not yet been filed, the IRS would look to 2019 returns. Families that aren't eligible for the enhanced child credit would claim the regular credit of $2,000 per child, provided their adjusted gross income is below the current thresholds of $400,000 on joint returns and $200,000 on other returns.

Alternative Plans for Enhanced Child Tax Credits

Note that there is a similar Democratic-sponsored proposal in the House that would make permanent an enhanced child tax credit and advance payments. And on the Republican side, Senator Mitt Romney (R-Utah) introduced his proposal last week to help fight child poverty. He wants the Social Security Administration to send monthly payments of $250 per child ($350 per child under age 6) to eligible families. Romney would pay for this break by eliminating some popular tax breaks and anti-poverty programs.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
The Current Plan for $1,400 Checks
Coronavirus and Your Money

The Current Plan for $1,400 Checks

Here's what you need to know about the stimulus check plan currently being considered in Congress for President Biden's COVID-relief package.
February 18, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021

Recommended

33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
February 24, 2021
IRS Extends April 15 and Other Tax Deadlines for Texas Residents
Tax Breaks

IRS Extends April 15 and Other Tax Deadlines for Texas Residents

Following FEMA's recent disaster declaration for winter storms in the Lone Star State, taxpayers in all 254 Texas counties get more time to file and p…
February 22, 2021
5 Strategies for Tax Planning Now and in Retirement
tax planning

5 Strategies for Tax Planning Now and in Retirement

Tax planning is one of the best things you can do to keep more money in your pocket in retirement. There are specific things to consider when planning…
February 18, 2021
What's the Recovery Rebate Credit?
Tax Breaks

What's the Recovery Rebate Credit?

If you didn't get a stimulus check, or you didn't get the full amount, you may be able to claim the recovery rebate credit on your 2020 tax return to …
February 17, 2021