How the Expanded Child Tax Credit Payments Work
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Here's your money briefing for Wednesday, June 16th. I'm J.R. Whalen for The Wall Street Journal. Starting next month, about 39 million American households with children will begin receiving expanded child tax credit payments that were included in the COVID-19 stimulus package passed in March.
And the idea is to help families with children cover the cost of raising children. And also to, you know, the recent expansions are really designed to significantly reduce child poverty.
So how do the payments work? And what do they mean for families' bank accounts? We'll check in with our tax reporter Richard Rubin to sort through the details. That's after the break.
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What is the expanded child tax credit and why is it being reintroduced now?
With prices rising for things like food, clothing, and gas, many families will be relieved to see a little bit extra in their bank accounts starting next month. The federal government's expanded child tax credit payments will begin going out soon. But the rules surrounding them can be confusing, and some families might even choose not to take advantage. Let's bring in our tax reporter, Richard Rubin, to break things down. Rich, thanks for coming on the show. Oh, sure. Thanks for having me. So, Rich, let's start with the basics. This is a tax credit, not a tax refund or deduction. Can you explain the difference in how this particular credit works?
Yeah, a credit is a dollar-for-dollar reduction in the amount of tax you owe. It's not a deduction in the sense that's reducing the amount of income that's subject to taxes. And it's not really a refund. It can be part of your refund, but it is not itself a refund. So the tax credit is the amount of reduction in your tax bill. And for this tax credit in particular... If it even reduces your tax bill below zero, you can still get the money.
And so what's behind this particular tax credit? And why does it exist in the first place?
So the tax credit exists as a way to provide support to families. It's a child tax credit. It's an amount you get as a taxpayer for each child that you have in your household. And the idea is to help families with children cover the cost of raising children. And also to, you know, the recent expansions are really designed to significantly reduce child poverty.
Now, the child tax credit has actually been around for a long time. It was first created back in 1997. But what's different about it this year?
Congress made several changes to expand the credit for this year. The basic credit went from $2,000 per child to $3,000. They added another $600 if you have a child under age six. The credit is also now fully refundable, so there are no limits on the amount of money you can get other than the total cap on the credit if your income is so low that you don't pay income taxes. And one thing people will find out as they start getting this money is it's now partially advanceable. There will be monthly payments of half of the credit that will happen over the second half of 2021.
Well, let's talk more about those monthly payments.
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