This would be a major expansion of the child tax credit, which currently provides $2,000 a year for children from birth through age 16. Biden’s plan would expand the tax credit for only one year, but senior Democrats have said they will seek to make the expansion permanent later this year.
Below are more details on who would qualify and how it would work. The plan must still be approved by the House of Representatives and Senate before it can be signed into law.
Who would get a $3,000 payment?
Couples who earn up to $150,000 a year (in adjusted gross income) and single parents who earn up to $112,500 a year (in adjusted gross income) would be eligible to receive $3,000 a year per child through the age of 17 and $3,600 per child younger than 6.
Parents that earn slightly over these income levels would be eligible for a slightly reduced payment. And all couples with children who earn up to $400,000 would still be eligible for the $2,000 child tax credit.
How often would the payments arrive?
The legislation calls for parents to receive monthly payments. So a household with one child under 6 would receive $300 a month and a household with one children between the ages of 6 and 17 would receive $250 a month.
The Internal Revenue Service is supposed to distribute the payments. If the IRS is unable to do that monthly, the legislation calls for sending out the money as frequently as possible — so perhaps every two or three months.
Unlike earlier versions of the proposed expansion, the plan released by House Democrats would not require the benefits to be offset against existing tax liability to the IRS. That means even families who owe money in taxes would receive the benefit, a move aimed at improving the administrative efficiency of the benefit.
When would the payments start going out?
The payments would be sent monthly beginning in July, a delay intended to give the IRS time to prepare for this new initiative after the tax filing season ends in mid-April.
The IRS has told senior Democratic lawmakers that it is concerned about its ability to get the child benefits out alongside the $1,400 stimulus payments, potentially complicating swift implementation of the new program.
How much would this cost?
The cost of sending these payments out for one year is $109 billion, according to an analysis by the Joint Committee on Taxation, a nonpartisan arm of Congress that estimates the cost of tax changes. The $109 billion figure includes only the cost of the additional benefits over and above the current $2,000 child tax credit.
If the policy is made permanent, the cost would repeat every year.
How much would this reduce child poverty?
About 5 million U.S. children would be lifted out of poverty, including 1 million Black children, according to an analysis by Columbia University researchers. That means the U.S. child poverty rate would be roughly cut in half.
There were 10.5 million children under age 18 living in poverty in the United States in 2019, according to the U.S. Census.
What if my 2021 income drops sharply?
The payment would be based off of parents’ 2020 or 2019 tax information (the latest tax year the IRS has on file from the family).
Given that some people may lose (or gain) a job in 2021 or have another child, the Democratic legislation would create an online portal, run by the Department of Treasury, where families could update their information if their income declines and/or they become eligible for the payment.
Would unauthorized immigrants receive the payments?
To receive the monthly $250 to $300 per child payments, every child must have a Social Security number. This means that only U.S. kids would receive the payment, but they would still get it even if their parents are unauthorized immigrants.
What are some of the potential problems with the new benefit?
One major problem confronting policymakers has been what to do about taxpayers who are incorrectly paid the benefit by the IRS.
Under Democrats’ plans, the IRS will send the payments based on taxpayers’ tax returns in the prior year (i.e. based on 2020 income). But that information may be out-of-date, meaning a taxpayer who no longer has custody of a child or is now earning too much to receive the benefit would incorrectly get the payment.
Some policy experts have raised the concern that this arrangement could create year-end tax shocks for taxpayers, in which the IRS demands repayment of money wrongly deposited for months in someone’s bank account. Chye-Ching Huang, executive director of the New York University Tax Law Center, said this issue had caused “massive hardship” in Australia and other countries when implementing similar programs.
The Democratic plan attempts to solve this problem with a “hold harmless” provision that says couples earning under $60,000 and single parents earning under $40,000 would not have to repay $2,000 in incorrectly issued payments.
The Center on Budget and Policy Priorities, a leading left-leaning think tank, said Tuesday that many families would not realize the money could be clawed back by the IRS at tax time. It suggested incorrectly disbursed child benefits should not be required to be repaid to the IRS at all, given the temporary nature of the program. Millions of poor families could also miss out on the benefit because they do not regularly file their taxes, something running the program through the Social Security Administration might be able to avoid, said Matt Bruenig, founder of the People’s Policy Project, a left-leaning think tank.
Why are Democrats doing this?
Biden embraced a dramatic expansion of the child tax credit during his 2020 presidential campaign, and the policy has emerged as a point of near-consensus among congressional Democrats. All but one Senate Democrat backed similar legislation spearheaded by Sens. Sherrod Brown (D-Ohio) and Michael F. Bennet (D-Colo.) in the previous session of Congress.
Reps. Suzan DelBene (D-Wash.) and Rosa L. DeLauro (D-Conn.), who helped lead the House-side version of the push for expanding the credit, this week called for Democrats to move soon to make it permanent as a way to more durably reduce child poverty.
“We cannot stop here,” DeLauro said in a statement. “One year is not enough for the children and families battling not just the coronavirus, but poverty, too.”
What do Republicans say?
Some Republicans have voiced concern that giving parents so much money would discourage them from looking for jobs and working. The current child tax credit is also only refundable up to $1,400, meaning many low-income families don’t get the full payment. The Democratic plan would allow even the poorest families that have little to no federal tax bill to get the full $3,000 per child amount.
Still, there is some bipartisan interest in doing more for families with kids. Sen. Mitt Romney (R-Utah) recently proposed the Family Security Act, which would provide even more in per-child benefits for young children. Romney’s plan is similar to Democrats’, except that Romney’s would eliminate the existing federal welfare program and a tax cut benefiting blue states, as well as scaling back food stamps. Romney’s proposal adopts the broad framework of directly sending child benefits to millions of American families, even if their parents are not working.
For now Romney has largely been an outlier in that respect, among Republicans and conservatives. Several libertarian scholars, including Veronique de Rugy of the Mercatus Center, a libertarian think tank at George Mason University, have argued that the proposed benefit expansions would discourage families from working. Sens. Mike Lee (R-Utah) and Marco Rubio (R-Fla.), who have led GOP efforts to expand the child tax credit, also panned Romney’s effort as “welfare assistance.”
Why is this in a ‘stimulus’ bill?
One criticism of the expansion of the child tax credit comes from those who question why it’s in a package aimed to help those reeling from the coronavirus pandemic. Democrats argue families with children have been especially hard hit in the pandemic, as they have had to navigate virtual schooling. Yet, some Republicans say this policy is about reducing long-term poverty and should not be lumped in with aid for the unemployed and small businesses.
Some critics are concerned the tax credits would benefit too many affluent families and should be targeted more toward the poor.
“A child benefit as a stimulus to the economy does seem a far stretch,” said John Cogan, a former deputy budget director under President Ronald Reagan who is now at the Hoover Institution. “On humanitarian grounds, on the other hand, there is a case that could be made for such benefits, but they should be targeted on those we believe are in need.”