Here's What You Need to Remember: The American Rescue Plan substantially increased this number; it raised the benefit for children between the ages of six and seventeen to $3000 per year, and for children under six to $3600 per year – respective increases of 50% and 80% from the original amount.
In March 2021, the Biden administration proposed, and Congress narrowly passed, the American Rescue Plan Act. The legislation, costing nearly $2 trillion, is best-known as a direct stimulus measure; it was the bill that provided for the $1400 stimulus checks that were (and continue to be) mailed out to all Americans making less than $75,000 per year. However, the act, two hundred and forty-two pages long, included many other measures which have received comparatively less attention.
One of these measures was an expansion of the Child Tax Credit. The old tax credit provided a $2000 per year tax refund to working parents. The American Rescue Plan substantially increased this number; it raised the benefit for children between the ages of six and seventeen to $3000 per year, and for children under six to $3600 per year – respective increases of 50% and 80% from the original amount.
This is not all the bill does, however. Also included is the line, “The Secretary shall establish a program for making periodic payments to taxpayers which, in the aggregate during any calendar year, equal the annual advance amount determined with respect to such taxpayer for such calendar year.”
What this means is that, instead of waiting until your next tax return is filed and claiming the payment as a refund all at once, the IRS has been empowered to send the deduction amount out as a periodic check. The Biden administration has since announced that the first of these checks will be sent on July 15, 2021, and on the 15th of each month thereafter.
If you receive the check in this way, you won’t be eligible to claim the deduction when you next file your taxes – but you will get the money in advance, and you won’t be required to pay taxes on it. Functionally, this makes the measure no different than a small monthly stimulus payment for middle-class parents.
There is one caveat to this. The benefits are not provided to everyone; full benefits are only awarded to single parents making up to $75,000 per year, or couples making up to $150,000 per year. Once this threshold is crossed, the annual benefits decrease by $50 per every $1000 the person makes above this limit. For instance, if you are a single parent making $80,000 per year, your benefit will decrease by $250 per year, to either $3350 or $2750 depending on the age of the child.
Despite this restriction, the Treasury Department has estimated that 39 million households, encompassing roughly 88% of the country and 65 million children, will be eligible for full or partial benefits. The IRS has recommended the use of direct deposit for efficiency, but will continue to send paper checks for families who want them.
It is also important to note that this credit is scheduled to expire at the end of this fiscal year. However, Biden has proposed language that could extend it to 2025, if successful.
Trevor Filseth is a news reporter and writer for the National Interest. This article first appeared earlier this year.