Americans Are Overlooking the Biggest Part of the Stimulus Bill

The $1,400 checks are just the start of the relief that the recent stimulus bill provides.

President Joe Biden promised Americans more coronavirus relief, and the administration is likely to deliver on this campaign goal. In fact, the U.S. Senate passed a COVID-19 aid bill over the weekend that will soon make its way to the president's desk for a signature.

The most widely publicized part of the legislation is undoubtedly its $1,400 stimulus checks. Eligible adults and dependents can expect this money soon after the president officially signs the American Rescue Plan (as the new COVID bill is called).

Those hit hard by the pandemic may be excited about the prospect of a $1,400 direct payment. But for parents, that one-time check may not be the most valuable part of the bill. An expanded child tax credit could provide much more generous assistance -- and potentially open the door to long-term aid.

This expanded child tax credit could be more valuable than a $1,400 check

The COVID relief bill didn't just authorize a third COVID-19 stimulus payment. It also expanded the child tax credit for one year.

Tax credits reduce taxable income on a dollar-for-dollar basis, so they're very valuable. There's currently a child tax credit in place that's valued at up to $2,000 per eligible child.

However, only $1,400 of it is refundable, and individuals must have earned at least $2,500 in income to get a refund. This means it doesn't benefit lower-income Americans -- or those who pay less than $2,000 per year in federal taxes -- as much.

The American Rescue Plan makes fundamental changes to this tax credit for 2021.

• First, the credit is increased from $2,000 to $3,000, and to $3,600 for children under the age of 6.
• Second, the credit is now fully refundable. The $2,500 minimum income limit is eliminated.
• Third, you no longer have to wait until you file your taxes to claim it. The IRS is expected to pay out half the credit in a series of periodic payments between July and December of 2021.

This makes the credit far more valuable to many parents than the one-time $1,400 check. After all, $3,000 -- or $3,600 -- is a larger amount. And parents can claim this credit for multiple children who meet the requirements. These include the child living with you for at least six months, being classified as your dependent, and having a Social Security number.

Increased child tax credits could become permanent

Further, while the American Rescue Plan only expanded this credit through the end of the year, many Democrats want to make this credit permanent. Doing so would lift millions of children out of poverty.

It's very possible that Democrats will argue parents who have gotten used to the money shouldn't be cut off from it. At that point, they'll likely push hard to make the credit permanent in later legislation. In other words, the $3,000 per child -- or $3,600 per child -- included in this stimulus bill may open the door to ongoing payments throughout your children's early years.

For most families, that will impact their bank account balances far more than a one-time $1,400 check.