This may come as a surprise and unwelcome to many – especially people who are not poor – because it could bite them in tax time.
“Maybe they’ll get a small refund or part of that money back in the spring,” says Elaine Maag, an expert on the initiative at the Tax Policy Center.
“That will probably annoy some people.”
It is also likely that at least some low-income earners would prefer not to participate because they would prefer to receive a lump sum at tax time.
This underscores that deciding whether to participate in an administration signature initiative can be more complicated than it appears – taking into account people’s individual circumstances as well as their personal preferences.
The number of people receiving the payments will be closely monitored as the initiative progresses. The IRS says it will have instructions on how people can opt out by the end of this month.
The government is now encouraging people to sign up as the government prepares to hand out the first round of payments on July 15ththe of every month.
The IRS has sent letters to millions of Americans alerting them to the program: a special website The initiative went live this week, and the White House has produced flyers for supporters to hand out.
“We need to publicize the child tax break and understand the importance of it to families in order to build public support for CTC and its expansion and make sure everyone knows about it,” Gene Sperling, a White House adviser, said in an email Tuesday evening to the supporters.
The government will pay out half of people’s total child tax credit over the next six months, while taxpayers will collect the rest over the next year when they pay their taxes. The program is temporary, although Democrats are pushing to make it permanent as part of their next major spending package.
Payments are primarily geared towards helping the poor with unexpected expenses year round, and they will receive the largest increases in payments.
As part of their latest coronavirus stimulus package, the Democrats increased the maximum credit from $ 2,000 to as much as $ 3,600 for couples earning up to $ 150,000. At the same time, they dumped reserves that tied people’s payments to their work, preventing millions of the poorest from drawing on the loan.
The plan aims to reduce the number of children living in poverty.
While Congress limited the number of people who can qualify for the newly expanded loan, lawmakers urged the Treasury Department to include all beneficiaries of child tax credits, regardless of income, in the monthly payment program unless they decline.
The child tax credit is the second most popular individual tax break in the law.
Deciding whether to wait for monthly payments instead of tax time is relatively easy for those who don’t make enough money to owe federal taxes – the key question for them is whether to take the money now or later should.
However, some will likely prefer flat-rate payments.
This is in an analog pilot program in Washington D.C. happens where a consortium of private foundations is distributing $ 5,500 in cash to up to 500 low-income households.
When asked whether they want to receive the entire amount at once or in monthly installments, the vast majority opted for the former, said Maag, who works with the initiative.
That could be a result of the coronavirus pandemic, she said.
“This is in the middle of a pandemic where people are facing extreme hardship. So it could be that they had already accumulated bills and wanted a larger payment, ”said Maag.
Still, she said, “It’s not entirely clear to me whether low-income people will ultimately choose one payment or multiple payments.”
For those higher up the income ladder and earning enough to pay federal income taxes, the rationale for claiming monthly child tax credits may be less clear.
Approximately 20 percent of the families who receive the loan are making too much money to qualify for the newly expanded loan – they will continue to receive the underlying loan before 2021, which will be paid off in monthly installments. For example, a couple with two children earning $ 300,000 can expect $ 333 by next month.
But they may not need the money or they may not even notice that it is coming. And if they accept these payments now, they won’t be able to use them later to reduce their tax bills for the next filing season.
“If you are above these income limits and are not getting an additional child tax credit, then you may not want to play around with it,” said Maag.