The child tax credit has been improved to include babies born or adopted this year, so the families in the United States could now rejoice.
Commissioner Charles Rettig told the Senate Finance Committee that the IRS expects to start submitting monthly payments from the proposed $3,000 child tax credit in July.
President Joe Biden signed the $1.9 trillion American Rescue Plan into law in March, which included a new and greatly increased child tax credit. For the 2021 tax year, families will earn a $3,000 annual bonus per child aged 6 to 17 and $3,600 per child under the age of 6.
Rettig testified just a few weeks ago that the IRS was not sure it would be able to start sending payments to families in July, and that the checks may not be monthly.
He explained that the organization was overburdened by the extended tax filing season, which was pushed from April 15 to May 17 for individuals, and thus had less time and money to devote to developing and launching a child tax credit portal.
Sen. Sherrod Brown, a Democrat from Ohio and ranking member of the Senate Banking Committee, asked Rettig if the IRS would be able to begin monthly child tax credit payments in July, and Rettig had a clear response.
"We are," said Rettig. "If we are unable to stay on track due to an unexpected circumstance, we will inform you and the committee."
Children under the age of six pay $300 a month.
Individuals with children and an adjusted gross income of less than $75,000 — or $150,000 for a married couple filing jointly — are eligible for the full credit. Individuals earning $95,000 and married couples filing jointly earning $170,000 will no longer receive the additional advantage, which will be phased out over time.
Families making less than $200,000 a year, or $400,000 for married couples, would also be eligible for the regular child tax credit, which is $2,000 per child under the age of 17 for families making less than $200,000 a year.
Elaine Maag said, "It's trying to put the most benefit in the pockets of the lowest-income families."
Beginning in July, the extended credit will be disbursed every month to qualifying families until December 2021. For older children, the monthly payment will be $250, and for children under the age of six, the amount will be $300. Families will be able to demand the remaining half of the credit in 2022 when they file their 2021 tax returns.
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There is no limit on the number of children who can earn credit in a family as long as they fulfill the age and income criteria.
Families with children must file a 2020 tax return to claim the credit, according to Rettig. If a family fails to file a 2020 tax return, the IRS will be unable to deduct the amount owed to them.
The child tax credit is an essential part of the effort to help millions of children escape poverty. The extended child tax credit and $1,400 stimulus checks to both adults and children will provide more than $14,000 in pandemic relief to a family of four earning less than $150,000 this year.
According to a report by the Institute on Taxation and Economic Policy, about 83 million children live in households that would benefit from the expansion of the child tax credit. Furthermore, during the year that the strategy is in effect, the poorest 20 percent of households will see a rise in income of more than 37 percent.
However, one criticism is that the credit is only extended for a year.
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