Since July, monthly payments of the expanded child tax credit have hit Americans’ bank accounts. And they’ve already had a huge impact.
Until this year, the child tax credit was worth up to $ 2,000 per child and was only payable in the form of a tax refund. Also, only $ 1,400 of the credit was refundable, so if someone claiming it owed the IRS no tax, they wouldn’t get the remaining $ 600.
Thanks to the US bailout – the massive relief bill enacted in March – the child tax credit has received a big boost for 2021. On the one hand, it’s now worth up to $ 3,600 for children under 6 and up to $ 3,000 for children 6 to 17. The credit is also fully refundable, and only half will be paid as a tax refund. The remaining half is paid in monthly installments which began in July and are expected to continue through December.
Due to the positive effects that expanding credit has already had, such as reducing poverty and food insecurity, some lawmakers had begun to fight to make the strengthened version permanent. But now they can change their tone.
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Settle in for one more year
Democrats are working to reduce the weight of President Joe Biden’s Build Back Better program in an attempt to lower its price from $ 3.5 trillion to less than $ 2000 billion. As such, they are forced to make concessions, and one provision that is now on the chopping block is the enhanced child tax credit.
While lawmakers initially wanted to keep the extended version in place permanently, this evolved into a five-year extension. And now that five years is reduced to just one year.
This isn’t the best news for families who rely on credit to stay afloat. It is estimated that the first two monthly child tax credit payments lifted 3.5 million children out of poverty. And the Urban Institute reports that if the boost credit were extended until 2025, it could reduce the child poverty rate in the United States from 14.2 percent to 8.4 percent.
Yet lawmakers are playing with different credit requirements that could make a longer extension more achievable. These include imposing a working condition and lowering the income eligibility thresholds.
Currently, married couples who file a joint tax return can earn up to $ 150,000 and receive the credit in full. Democratic Senator Joe Manchin of West Virginia has proposed limiting credit to families with incomes of $ 60,000 or less.
What happens if there is no extension?
At this point, the child tax credit, in its current form, may only last one more year. Or the boosted version might not even be extended until 2022. If that happens, it will be a big blow to many families.
However, the silver lining is that the credit will not go away completely. It will simply revert to its old structure. It’s less than ideal for a lot of families, but it’s still a financial lifeline in one form or another.