The parents of about 60 million children are about to receive their third child tax credit this week.
The polished monthly checks are mainly used to cover household expenses and pay off debts, according to census data, and lift a large number of children out of poverty.
Now Democratic lawmakers plan to keep these “family incentive checks” going for years to come — but the proposal faces some major hurdles.
Better tax credit a godsend for low-income families
The extensive children’s discount was one of the big COVID-19 emergency measures included in the $1.9 trillion stimulus bill that President Joe Biden signed in March.
Any child ages 6 to 17 can now qualify for up to $3,000 in tax credits for their family. (That’s more than the previous $2,000 limit for children under 16.) Kids under 6 can qualify their family for even more — up to $3,600.
The credits have also become fully “repayable,” leaving them open to those families who struggle the most. If the deduction lowers a household’s tax burden below zero, you can now receive the negative amount in cash. (Previously, households had to earn a minimum of $2,500 per year to repay the credit.)
Households currently receive half of the credit upfront through monthly payments — up to $250 or $300 — during the second half of this year. The rest can be reclaimed next year in the form of a tax refund.
Early research shows that the first payment alone helped reduce child poverty by 25%, according to Columbia University’s Center on Poverty & Social Policy.
The center adds that if all eligible children are covered by the future payments, the credit has the potential to reduce monthly child poverty by up to 40%.
Legislators clash over expansion
The expanded child tax credit is expected to expire in 2022, but given the program’s success, some Democratic lawmakers want to extend the larger payments for another three years.
The proposal released last week by the powerful House Ways and Means Committee also seeks to make the repayability feature permanent.
Still, these changes could face an uphill battle in Congress. Republicans – and more budget-conscious Democrats – are against simple expansion.
In response to the proposal, members of the Republican Ways and Means have own statement against the claims Democrats have made about the effectiveness of the child tax credit.
“Democrats have turned the child tax credit into jobless well-being, which if it becomes permanent, will harm families, risk losing billions of taxpayer dollars to waste and fraud, and cost American jobs,” the statement reads.
West Virginia Democratic Senator Joe Manchin also wants more restrictions on eligibility, telling CNN on Sunday: “There are no job requirements at all; there are no educational requirements for better skills. Don’t you think that if we want to help the children, people should put in some effort?”
The clock is ticking for families to claim payments
As lawmakers debate an extension, time is running out for parents who have yet to sign up for this year’s advance payments.
Families who missed their first three payments can quickly catch up if they log into the IRS kids tax credit portal to register before 11:59 p.m. Eastern on October 4.
Instead of spreading half the credit over six installments, it’s divided by three. Families receive a trio of payments of $500 for each child ages 6 through 17 and payments of $600 for children under 6.
The portal won’t be available until mid-October, so families who don’t sign up before October 15 will have to wait to receive their payout until they file their tax returns next year.
What to do if you need money now?
Not everyone is eligible for the monthly payments.
The extended portion of the credit gradually starts to expire once your income reaches $75,000 ($150,000 for couples), while the $2,000 basic credit disappears once your income reaches $200,000 ($400,000 for couples).
If your family isn’t getting the payments — or the money isn’t enough — here are a few options for building your own family incentive check.
Tackle your debts. Keeping a credit card balance from month to month can land you in expensive interest. Address the problem by folding your balance into a single debt consolidation loan. With a lower interest rate you not only pay reduce the cost of your debt, you can also pay it off faster.
Trade in your mortgage payment for a cheaper one. Own your home and haven’t refinanced it in the past year? According to a recent survey by Zillow, nearly half of homeowners who took advantage of the pandemic’s bottom-line mortgage rates are saving $300 a month or more. Thirty-year mortgage interest again below 3%, so view some refi offers to see how much you can save.
Lower your insurance costs. You may be overpaying for auto insurance by hundreds of dollars this year if you haven’t been looking for a better rate lately. A little comparative shopping can help you find a much cheaper policy. And you can use the same strategy when it comes time to extend or buy homeowners insurance.
Turn your pennies into a portfolio. Even if you don’t have a lot of money, you can still make returns in today’s red-hot stock market. A popular app can help you invest your “change” of everyday purchases.
This article provides information only and should not be construed as advice. It comes without any kind of warranty.