New Child Tax Credit Would Pay Up to $300 Monthly

Close up of a young family using a laptop in the morning, while the father is talking on the phone
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Having a child could get a little easier, at least financially, if Democratic lawmakers are able to push through an expansion of the child tax credit that would provide many parents $250 to $300 in monthly benefits starting as soon as July.

Key Takeaways

  • Democrats want to increase the child tax credit from $2,000 a year to as much as $3,600 a year per child.
  • There are income limits for the extra cash: the benefit lessens for taxpayers making more than $75,000 and couples making more than $150,000.
  • The IRS would dole out the money in monthly payments of up to $300 starting in July.
  • The changes are part of President Joe Biden’s $1.9 trillion economic rescue plan, which Democrats hope to get passed by mid-March.

Not only do Democrats want to increase the existing $2,000 per child tax credit to $3,000 to $3,600 (though with lower income limits for the extra money,) they would deliver the funds in a vastly different way: instead of claiming the benefit at tax time, parents would receive a monthly payment from the IRS ($250 a month for a child 6 to 17 and $300 for under 6). Those payments would begin in July, and taxpayers would be able to claim the other half of their credit on their 2021 tax returns. 

The notion of expanding the child tax credit has been kicking around for a while, and Democratic lawmakers made proposals in 2019 and again in the early months of the COVID-19 pandemic. But protracted economic hardships have provided new impetus for the efforts, and now the Democrats have new clout in Congress. The January jobs report showed the labor market recovery has all but flatlined in the face of the pandemic’s winter resurgence, adding to calls for additional government relief.

“We will not get the economy up and running until we defeat the virus,” Rep. Richard Neal, a Democrat from Massachusetts who chairs the House Ways and Means Committee, said during a Monday press conference on the pandemic relief proposals being hashed out by the committee. “People are struggling. We need to hear their calls for help.”

The tax credit expansion is part of the $1.9 trillion pandemic relief package President Joe Biden is trying to get passed by Congress. Neal’s Ways and Means Committee is fleshing out the framework Biden provided, working out the details on proposals to distribute another round of stimulus checks of up to $1,400 and extend and increase temporary federal unemployment benefits to $400 a week, among other things. 

Income Limits on the Extra Money 

Unlike the current child tax credit, the $3,000 to $3,600 benefit would be reduced for taxpayers making over $75,000, and couples making more than $150,000, phasing out in $50 increments per $1,000 of income. But like the current tax credit, it can go no lower than $2,000 unless single taxpayers make more than $200,000 or couples make over $400,000. 

Beginning in July, the Treasury Secretary would advance six months worth of payments using adjusted gross income from either the 2019 or the 2020 tax return, and the remaining money could be claimed on the 2021 tax return.

Last year the Democrat-controlled House passed a similar child tax credit as part of the Heroes Act pandemic relief bill, but the Senate, Republican-controlled at the time, never voted on it. The political equation has changed now that the January Senate runoffs have given Democrats a razor-thin majority control.

Democrats say they’re pushing forward with or without Republican support, and Neal said the goal is to pass the legislative package by the second or third week of March. The child tax credit would initially only apply to 2021 taxes, but the hope would be to make it permanent, Neal said. 

Child Poverty

The shift to a monthly payment would provide families a steady and guaranteed stream of cash throughout the year in an “extraordinary advance” against child poverty that’s worse in the U.S. than other wealthy countries, Neal said. 

Taken together, Biden’s relief proposals could halve the U.S. child poverty rate in 2021, according to an analysis by Columbia University researchers. 

“I think when you watched all the problems of poverty get exposed with this big event, it brings it to the forefront of people’s minds and creates an opportunity to address this issue that has been simmering for a long time,” said Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center at the Urban Institute think tank. “The notion of a child allowance is something that many other countries have, and it makes a lot of sense.” 

Indeed, support for expanding child tax credits has grown so much that Republican Sen. Mitt Romney of Utah even released his own plan last week, calling it a universal child benefit that would help low-income families avoid having to choose between a bigger paycheck and maintaining eligibility for support. 

Romney’s plan proposes even higher monthly payments—$350 for children under 6 and $300 for children 6-17—and like the current child tax credit, wouldn’t begin to phase out the benefit until a single taxpayer made $200,000 and a married couple made $400,000. 

It was “absolutely a surprise” that Romney, whose 2012 presidential campaign was disrupted by his remarks claiming that 47% of Americans pay no income taxes, was now advocating additional subsidies to benefit low-income families, Maag said. 

The Romney version, however, would pay for it by cutting other tax breaks along with assistance programs, whereas the Democratic version does not spell out how to pay for it, according to Maag. 

There are other differences too. Romney’s plan would distribute the benefits through the Social Security Administration, which is used to sending monthly checks, whereas relying on the IRS might prove to be a tall order, Maag said. On the other hand, the Democratic plan aims to keep the cost down by cutting it off at a lower income threshold, she said. 

Neal said he and Romney want to get to the “same corner of the room” with their ideas.