Almost everyone is talking about the $1,400 stimulus checks that the next relief package could bring. Not many are aware that the $1.9 trillion package, if approved, could bring even more benefits in the form of tax savings, than the $1,400 coronavirus stimulus checks.
More in tax savings than coronavirus stimulus checks
According to the Urban-Brookings Tax Policy Center, the $1.9 trillion stimulus bill could reduce the household federal tax bills by an average of $3,100 this year. This means that the relief package, if approved, will not just provide stimulus checks, unemployment benefits and other benefits, but a significant amount of tax savings as well.
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This tax savings of $3,100 could be attributed to four major provisions in the relief package put forth by the House Ways and Means Committee last week. These four provisions are:
- The $1,400 stimulus check is basically an advance tax credit. This means you won’t have to pay any taxes on the stimulus check amount.
- An expanded income tax credit.
- An expanded child tax credit.
- Lastly, a bigger tax credit for those paying for child care.
The proposed $1.9 trillion plan not only increases the child tax credit, but also makes it refundable. This will allow families to get even more money. Under the proposed plan, a low-income parent would be allowed to claim $3,600 (from $2,000 earlier) for children below 6 years, and $3,000 for children under 18 years of age.
As per the Center for American Progress, the new child tax credit, if approved, would help lift about 11 million children out of poverty.
Additionally, the proposed boost in earned income tax credit could almost triple the maximum credit for workers without kids. Also, the proposal extends eligibility to cover more people under the income tax credit.
How can you get these tax savings?
You will get these tax savings when you file your taxes. The above credits would help to reduce your tax liability. Moreover, some of the credits would be refundable for 2021. This means, if your tax liability drops to less than zero, then the IRS would send you the balance amount into your bank account directly.
As per the Tax Policy Center, about two-thirds of the tax savings would go to households making less than $91,000 annually. So, the majority of the savings would go to low to middle income families. On the other hand, about 11% of the savings would go to higher-income households or those earning more than $164,000 a year.
A point to note is that these extended credits and tax savings would only come if Congress approves the $1.9 trillion package. It is expected that Congress will approve the package sometime next month. Meanwhile, the House of Representatives is likely to vote (and also approve) the bill today.