Liz Weston: The checks that could change your financial life

Starting in July, most families with kids will start getting monthly payments of up to $300 per child as part of the American Rescue Plan’s expansion of the child tax credit.

The payments are scheduled to end in December, and it’s unclear whether they will be extended. But even six months of payments could make a big difference in many families’ finances.

For some, the money will be a lifeline to pay rent, food and other essential expenses. For others, the cash could be a chance to make lasting changes that could help them become more financially stable.

A BIGGER, BETTER CREDIT

The child tax credit dates back to 1997 and started as a $500 credit designed to provide some tax relief to middle- and upper-middle-income families. Over the years, Congress expanded the size of the credit and made it available to lower-income people, too. In 2017, the maximum credit was raised to $2,000 and income limits were increased to $200,000 for single filers and $400,000 for married couples, after which the credit phases out.

The American Rescue Plan increases the maximum credit, but not for everybody. The new law adds $1,000 for children ages 6 to 17 and $1,600 for children under 6. But the extra amounts begin to phase out for single filers with adjusted gross incomes over $75,000 and married couples at over $150,000. The credit is reduced $50 for every $1,000 of income over those limits.

Taxpayers who are phased out of the extended credit may still qualify for the original $2,000 credit, although again the credit is reduced $50 for each $1,000 of income over the 2017 income limits.

The new law makes two other important changes. The credit is now fully refundable, which means more families can get money back if their credit amount is more than the tax they owe. Also, half of the...