How do these new stimulus checks work?

Happy family with piggy bank and money at home
New Africa / Shutterstock

Every household with children that qualifies for the current $1,400 stimulus check is set to receive the money via the expanded child credit.

If you're a family headed by a couple earning less than $150,000 or an individual making under $75,000, you're slated to get a $250 monthly payment for each of your kids ages 6 to 17, from July through December. For children under 6, you’ll receive $300.

In total, depending on how old your kids are, you’ll receive either $3,000 or $3,600 for this year. The monthly payments will account for the first half, while the other half will be refundable next year when you file your taxes for 2021.

The IRS will base your household's eligibility on the income in your most recent tax return, which will likely be the one for 2020. The IRS has extended the filing deadline from April 15 to May 17.

This temporary change to the credit provides families with up to $1,600 more per child that can be used however you like: for family expenses, debt, savings or even investing. You could open investing accounts for the children; one popular app allows kids to grow their accounts merely by adding spare change.

In previous years, you could claim a credit of only as much as $2,000 per child, and just $1,400 was refundable. Single parents earning more than $75,000 and couples with incomes over $150,000 won’t receive the full payments under the expanded credit but may still qualify for some support.

What if your family has a 'new addition' this year?

Father Holding Newborn Baby In Nursery
Monkey Business Images / Shutterstock

Let’s say you have a young family with a 3-year-old and 6-year-old. You can expect to receive $550 every month from July to December; if you claimed the child credit for the kids last year, they’ll be accounted for on your tax return and you should be set to receive payments.

But if you welcome a baby into the family this year, can you get checks for the new addition?

Tucked into the relief bill is a request for the IRS to set up a new online portal where families can update their information, including the number of qualifying children.

The hope is that this portal will be up and running by July, so you'll just be able to go online and enter the information about that joyful reason for all the sleepless nights you're now having.

If you don't give the IRS an update through the portal, you’ll have to wait until you file your 2021 taxes to claim the $3,600 credit for your family newcomer.

What about divorced parents?

Things get a little trickier with parents who are divorced. Unless this is your first year filing taxes since the separation, you already know that only one parent can claim your children as dependents on their taxes.

Usually, it's the parent who has the kids for the most time over the course of the year. If you have a 50/50 custody agreement, the credit typically goes to the parent with the higher adjusted gross income. (That's taxable income before the standard deduction or itemized deductions have been subtracted.)

Some divorced parents with shared custody agree to alternate on claiming the child tax credit. But given that the enhanced credit — with the monthly cash payments — is effective only for this year, there’s bound to be some conflict.

The IRS will likely be sending the payments to the parent who claims the child or children on their 2020 taxes, because the agency typically defaults to the most current information it has on file.

If that doesn’t reflect who should be receiving the 2020 credit for your family, you’ll want to use that new portal once it's ready, to update your information and ensure the correct parent gets the payments.

What if you need the money right now?

young smiling parent calculating bills at home
GreenMiles / Shutterstock

If you don’t qualify for the enhanced credit, or you can’t wait until July for extra relief, here are some options to find more cash right away:

  • Cut the cost of your debt. If you’ve been relying on credit cards throughout the pandemic, expensive interest is bound to catch up with you. A lower-interest debt consolidation loan can fold your balances into a single, more affordable payment — and help you find freedom from your debt sooner.

  • Become your own insurance adjustor. You may be overpaying on your insurance bills by hundreds every month. With everyone staying home during the pandemic and driving much less, some car insurance companies have been giving customers price breaks. Not yours? Shop around for a better deal. Plus, you can save on homeowners insurance by comparing rates to find a less expensive policy?

  • Refinance your mortgage and slash your payments. Though mortgage rates have been rising in recent weeks, they're still at some of the lowest levels in history. Refinancing your current home loan could save you thousands of dollars over the next year. Mortgage tech and data provider Black Knight said in early March that 12.9 million mortgage holders could still benefit from a refi.

  • Find savings to "make your own" stimulus check. Make budget-friendly fun. Cancel streaming services and any other monthly subscriptions you're not using, and have a family games night. When you go to the supermarket, use an app that gives you cash back simply for snapping a photo of your receipt. And, before you do any more shopping online, download a free browser add-on that will automatically scour for better prices or coupons.

About the Author

Sigrid Forberg

Sigrid Forberg

Staff Writer

Sigrid is a staff writer with MoneyWise. A graduate of Carleton University's journalism program, she spent the better part of the last six years writing about business and retail. In her spare time, she enjoys reading, baking and riding her bicycle.

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