Key point: While more money in your pocket is clearly a good thing, this new program does have the potential to create some pain for some Americans next year.
The Internal Revenue Service has put many financially strapped parents’ minds at ease by confirming that monthly payments from the new $3,000 child tax credit will begin hitting bank accounts in July.
This is all possible because President Joe Biden’s $1.9 trillion American Rescue Plan expanded upon the child tax credit that generally allowed families to claim a credit of up to $2,000 for children under the age of seventeen. But that particular benefit now has been extended to lower-income families who otherwise wouldn’t receive such a credit.
Families are now eligible to claim as much as $3,600 per year for a child under the age of six and up to $3,000 annually for children between six and seventeen—which means for a family headed by a couple earning less than $150,000 or an individual making under $75,000, they are eligible to get a $250 or $300 monthly payment.
In one particular scenario, a family of four making less than $150,000 could potentially expect to net more than $14,000 in coronavirus pandemic relief this year alone.
“We are trying to get it as user-friendly as possible,” he added.
But Rettig did admit that launching a new program like this can pose unique challenges, stating that “we will not risk our system.”
The IRS has warned that some recipients may have to pay back a portion of these benefits during tax season next year. Understand that the new legislation directs the federal government to issue advance payments of the child tax credit in periodic installments.
But the advanced payments are based off the agency’s estimates on available data, such as overall income, marital status, and number and age of qualifying dependent children.
Be aware that any outdated or inaccurate data may trigger an overpayment of the child tax credit and that the impacted individual will be on the hook for any difference in the amount.
In order to get their hands on the new benefits, parents must file a 2020 tax return. Without a tax return, the IRS will not have the information it needs to deliver the credit.
Also, know that there is no limit on the number of children in a family that can receive the credit—just as long as they meet the eligibility requirements regarding age and income.
More help can come in the way of other tax credits that have been extended for another year to help cover the cost of child care. Families potentially could get back as a tax credit as much as half of their overall spending on child care for children under the age of thirteen, up to $4,000 for a single child, and $8,000 for two or more children.
Ethen Kim Lieser is a Minneapolis-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.