The New $3,000 Stimulus Check Actually Leaves People Owing Money
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In just a couple of weeks, the latest stimulus from President Biden's American Rescue Plan will be distributed. Rather than one direct payment like the $1,400 check that came with the relief package, this benefit comes both as a monthly check and a tax credit. The stimulus will definitely help anyone struggling financially, however there is a little bit of fine print on the plan and if you aren't aware of it, you might actually wind up owing money by accepting the checks.
The stimulus is part of the Federal Child Tax Credit and starting on July 15th, nearly all working families will begin to receive $3,000 to $3,600. To qualify for the entire benefit, you have to be part of a couple that makes less than $150,000, or a single parent earning less than $112,500. Anyone making more will either get less or not be eligible for any money.
For every child those moms and dads have between the ages of 6 and 17, they'll get a check for $250 every month for six months - that's $1,500. For any kid they have under the age of six, they'll get $300 monthly for six months, totaling $1,800. That's not all though, they will also get a tax credit next year - $1,500 for each kid six to 17 and $1,800 for each child under six. You can get an idea of how much you'll be getting from it with this online calculator.
Here's the catch for some parents though - all the money from the monthly checks actually comes from a pre-paid federal tax credit. That means recipients would've gotten that money anyways after they filed their taxes next year, but instead, they are now getting it upfront. However, for anyone who typically does not receive a tax refund, they might wind up owing money on their 2021 taxes because of the benefit. So if you typically wind up paying Uncle Sam when you file your taxes, or you just don't get any refund, you might pay an additional fee on your taxes if you get the stimulus.
One expert explained it to CNBC saying, "If you get overpaid in child tax credits or your financial situation changes this year so that you have a higher tax bill on your 2021 taxes, the IRS may demand you repay the credit come tax time. This is very important for planning and can easily become a trap for parents."
So what can you do? Well if you might wind up owing money, you can set aside some of the monthly checks to pay back what you'll owe come tax time next year. The other option is to just refuse the stimulus. You'll likely want to get a plan now because this might not be the only year with the tax credit. Although it was only supposed to be offered in 2021, President Biden is looking to extend it for a lot longer. In a tweet, the White House revealed they've proposed keeping the benefit around for "years and years to come."
You can learn more about the child tax credit here.