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HomeCreditHouse raises child tax credit to $3,000, but only for a year

House raises child tax credit to $3,000, but only for a year

The House of Representatives passed the $1.9 trillion Covid-19 relief package on Saturday, which included a temporary increase for the child tax credit. 

The House’s American Rescue Plan increases the child tax credit for 2021 to $3,000 per child ages 6 to 17 and $3,600 annually for children under 6. The enhanced payments, which specifically cover teens who are 17 for the first time, would start to phase out for individuals earning more than $75,000 a year or $150,000 for those married filing jointly. 

Don’t miss: The best credit cards for building credit

There’s already a child tax credit in place that provides $2,000 per child. When Americans file their taxes, they can claim the credit for children under 17. The current credit is income-based, so those making over $200,000 ($400,000 for married couples filing jointly) will see the amount of their credit gradually phased out. If taxpayers’ credit exceeds their taxes owed, they can get up to $1,400 as a refund.

The House bill passed Saturday would increase the credit amount by $1,000 ($1,600 for those with children under 6) and allow taxpayers to receive the full amount as a refund for 2021. Families that are ineligible for the new $3,000 credit due to higher adjusted gross incomes would still be able to claim the $2,000 per child credit. Additionally, the plan would make the credit payable in monthly installments of $250 and $300, respectively, rather than just once a year. 

“The coronavirus pandemic did not just shine a light on child poverty, it exacerbated it, and amplified the need — and the urgency — for expanding and improving the child tax credit,” Rep. Rosa DeLauro, D-Conn., said in a statement. “For a long time, we’ve known that this change would dramatically cut child poverty, with enduring benefits for children and their families.”

The American Rescue Plan’s changes to the child tax credit will cut child poverty by roughly half, according to the Center for Law and Social Policy. Poverty levels among Black children are expected to fall by 52% while those among Hispanic children will drop 45%, according to CLASP. “If made permanent, these improvements will have multi-generational, positive effects,” the organization said in a statement.

Under the new provision, the Treasury Department could issue advance payments of up to half the 2021 child tax credit starting in July based on families’ 2019 or 2020 tax return information. If there is any overpayment of the credit, individuals making less than $40,000 ($60,000 for couples filing jointly) would not need to repay the amount, nor would it be garnished from wages. 

Several Democrats, spearheaded by DeLauro, supported a proposal that would make the enhanced payments permanent, but the language did not make it into the final version of the House legislation. 

Additionally, Senator Mitt Romney, R-Utah, proposed a similar tax credit last month that is slightly more generous for younger children (provides up to $4,200 a year for children under 6) and lasts longer than the child credit proposed as part of the $1.9 trillion relief package. However, to offset the cost of the increased tax credits, Romney’s plan proposes eliminating a number of other family-focused programs and credits. 

The House version of the American Rescue Plan will now go to the Senate, which is expected to vote on the package before March 14.

Check out: The best credit cards for building credit of 2021

Don’t miss: Here’s who qualifies for a $1,400 stimulus payment under the American Rescue Plan

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