The child tax credit has four major changes

Families with children, especially low-income people, are poised to get a bigger discount on their taxes next year.

The $ 1.9 trillion U.S. bailout plan, which President Joe Biden hopes to sign on Friday, makes major changes to the children’s tax credit.

These adjustments to the tax code include increasing the value of the credit, making it available to families with older children, and making it fully repayable. The funds would be produced on a regular income basis starting this year, as opposed to a lump sum at the time of tax.

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Americans would get a tax cut of $ 2,700, on average, as a result of legislative changes, according to the Urban-Brookings Fiscal Policy Center.

The bottom fifth of wage earners (Americans earning less than $ 25,500 a year) would get the biggest wear and tear: an increase of $ 3,800, on average, according to the analysis. Ninety percent of the lowest winners would get a break.

In comparison, about 39% of wealthy families would see a benefit. The top 20% would get an average tax cut of $ 600, according to the Tax Policy Center.

Changes in the relief measure are temporary. By now, they would only be in place for a year.

This is what you need to know about extended credit.

A tax credit cuts the overall tax bill.

Right now, taxpayers can apply for a child tax credit of up to $ 2,000 for children under 17.

The U.S. rescue plan raises $ 3,600 for children under 6 and $ 3,000 for older children.

According to the Center for Tax Policy, approximately 3 out of 4 families with children will receive a higher tax credit than current legislation.

The legislation also extends the age of children who meet the requirements by one year. It also allows families to claim a loan for 17-year-olds.

There are income limits on the tax credit for children.

The full tax rebate would be available to people earning up to $ 75,000 a year; heads of households earning up to $ 125,000; and married couples who file a joint tax return earning up to $ 150,000.

Credit is phased out for higher winners.

The relief measure also makes the tax credit fully refundable.

There are two types of tax credits: repayable and non-repayable.

The child tax credit is a repayable credit. Taxpayers receive a refund even if the credit exceeds their total tax bill. In other words, the refund not only eliminates the tax obligation, but also allows people to pocket the extra.

Right now, the child tax credit is partially repayable. Taxpayers can only recover up to $ 1,400 in total.

Wealthy families, who tend to have higher tax bills, get the most benefit from this structure. In general, they can claim the full value of the credit, while someone with no tax liability has a maximum limit of $ 1,400.

A single father with a child has to earn at least $ 25,000 a year to get the total credit of $ 2,000 right now, said Elaine Maag, a senior researcher associated with the Center for Tax Policy who studies income support programs.

About 27 million children live in households that do not get the full value of the credit because their parents’ income is not high enough, he said.

The American Rescue Plan makes the child tax credit fully repayable, meaning you get more money on low income.

Right now, credit is available to taxpayers in a lump sum when they file their taxes (if they receive a refund).

The pandemic aid measure would turn credit into a regular income stream for families.

Periodic payments can start arriving as early as July, according to the legislative text. Their frequency is unclear, but they can be monthly or quarterly, Maag said.

The timeline depends on how quickly the IRS can reprogram its systems to adapt to the modification.

“A sustained payment to individuals and families is very different from how the IRS normally works,” Maag said.

Revenue would technically be an advance on the expected credit from Americans for the fiscal season of 2021. This year they would get half of that credit in periodic payments and the rest during the fiscal season next year.

The legislation orders the IRS to create an online portal that allows taxpayers to choose not to pay regular payments. The portal would also allow them to change information, such as family size.