The bill was adopted by the Senate on Saturday and awaits a final vote from the House. Biden has said he will sign the measure into law.
“The provisions in the bill for parents are significant,” said former taxpayer advocate Nina Olson, who is now executive director of the Center for Taxpayer Rights. It “targets the assistance to families who are among those needing the greatest help, those who have so little income they do not have a tax liability.”
Here are some answers to questions you may have about payments for children and other dependents in the latest stimulus package.
Frequently Asked Questions
- How much is the direct stimulus payment for dependents?
- Will the IRS deduct back child support or other federal or state debts from the third stimulus payment?
- How much more will I get under the Child Tax Credit provision?
- How will I receive the money under the Child Tax Credit?
- Will there be changes to the child and dependent care tax credit?
How much is the direct stimulus payment for dependents?
Eligible taxpayers will receive $1,400 for each dependent claimed on their federal return, regardless of age. This might include a college student or disabled adult child. (Eligible taxpayers who claim an elderly parent are also entitled to a $1,400 payment.)
“That increases that total amount for folks who have larger households,” said Garrett Watson, senior policy analyst for the Tax Foundation, which has been providing analysis of the stimulus package. “This is going to be a pretty big change.”
In the previous two rounds of stimulus relief, parents could get a payment only for dependents who were 16 or younger. So, if you had a dependent child who was 17 or older, there was no extra coronavirus-related assistance.
The age cutoff confounded many parents, especially those who had lost their jobs or saw a decrease in income. They were upset that they could not get assistance for older children living at home.
Parents of young adults in college, who themselves may have lost jobs or experienced a drop in earnings they used to supplement their living expenses, were upset they couldn’t get a dependent stimulus payment. There were also protests from parents caring for disabled adult children.
“The disability community really complained about the fact that you have adult disabled dependents and they were completely shut out,” Olson said.
It’s important to note, however, that the money will be issued to the taxpayer, not the dependent.
Will the IRS deduct back child support or other federal or state debts from the third stimulus payment?
Typically, the IRS may reduce a taxpayer’s refund to offset back child support, past-due tax debt, and other federal or state liabilities. The IRS can offset or take a person’s refund to satisfy those debts.
The third round of stimulus payments sent by the IRS will not be subject to any offsets, according to Watson.
However, “private debt collection could happen in some circumstances, as the bill just protects payments against garnishment from the IRS or government agencies,” Watson said.
How much more will I get under the Child Tax Credit provision?
The bill would expand the Child Tax Credit for the 2021 tax year to a fully refundable $3,600 for children 5 and younger and $3,000 for those ages 6 to 17. Paying the benefit for 17-year-olds provides an extra year of eligibility, Olson points out.
How will I receive the money under the Child Tax Credit?
Details of how — and how often — the money will be sent by the IRS still need to be worked out.
The stimulus measure directs the Treasury Department to advance these payments “periodically,” which most likely will mean monthly, but we’ll need confirmation from that agency and the IRS in the weeks ahead, Watson pointed out.
The payment would be based on a parent’s 2019 or 2020 federal return, whichever is the most recent available to the IRS.
The higher child tax credit payments will go to the younger children. So, it’s $300 per month ($3,600 per year) for infants to age 5. For ages 6 to 17 it’s $250 ($3,000 per year), Watson explained.
The payments are slated to begin in July. The money paid out in advance — because the credit is for 2021 — will overall be half the amount parents are projected to be eligible to claim when they file their federal returns next year, according to Olson.
The credit phases out for individuals with adjusted gross income of more than $75,000, $112,500 for head of household, and couples with more than $150,000.
Your AGI is your gross income minus certain adjustments. If you aren’t sure of your AGI, you’ll find it on Line 11 on Form 1040 and 1040-SR for the 2020 tax year. It’s on Line 8b on your 2019 federal tax return.
Will there be changes to the child and dependent care tax credit?
You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work, according to the IRS.
The tax credit for child and dependent care would increase for 2021 from a maximum of $1,050 for one child and $2,100 for two or more children to $4,000 and $8,000. The credit would also be fully refundable, which means you get a refund, even if it’s more than what you owe.
“The increase in the amount of the child and dependent care payments is significant, and making the credit refundable once again benefits those taxpayers who do not have a tax liability,” Olson said. “Refundability puts money in their hands.”
Overall, the windfall for parents could bring an estimated 40 percent of children in America out of poverty. This would be long overdue for our nation’s families, and at a time they need it the most.