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The American Rescue Plan, the massive relief bill enacted in March, had a number of key provisions designed to help the public recover from the financial blow of the pandemic. In addition to increasing unemployment benefits until early September and sending Americans a third round of stimulus checks Bank accounts, the bill improved a long-standing credit for parents – the child tax credit.
Prior to 2021, the child tax credit had a maximum value of $ 2,000 per child and was paid out as a lump sum in the form of a tax refund. In addition, only $ 1,400 of the credit was refundable, meaning that if someone who claimed it did not owe tax, they would not get the full value of the credit.
This year, the child tax credit is worth up to $ 3,600 for children under 6 and up to $ 3,000 for children 6 to 17 years old. payable in 2022.
Equally important, the child tax credit is fully refundable this year. If a family does not owe tax, it can still collect all the money it is entitled to.
Initially, lawmakers hoped to make the enhanced child tax credit a permanent feature of the tax code – especially given the positive impact it’s already done. But since then they’ve had to cut back, and now it looks like the increased credit can only last one more year.
But on a positive note, lawmakers are still striving to make the child tax credit fully refundable on a on a permanent basis. If they are successful, it could make a huge difference in the lives of many families.
A significant change
Research by the Jain Family Institute reveals that if the child tax credit became fully refundable on a permanent basis, it could reduce child poverty rates in the United States by 19%. That alone fuels the argument to keep this feature in place for the long haul. In fact, paying off the child tax credit in full could reduce the poverty rate for African American children by 30%.
Even if the credit reverts to its previous value and caps at $ 2,000 per child, families will at least have an easier time claiming the full $ 2,000. And it could help many low- and middle-income earners consolidate their finances, especially in the aftermath of the pandemic.
Will the full refund of the tax credit take off?
The high cost of keeping the strengthened child tax credit permanent is what forced lawmakers to reverse the idea. But continuing to repay the credit in full costs less than maintaining the credit at a higher value. Maintaining this functionality is more than doable.
It is estimated that keeping the most valuable child tax credit in place would cost $ 45 billion. Meanwhile, keeping the credit fully repayable comes at a price of just $ 17 billion (“fair” being a relative term, of course).
Two more payments on the way
Families who already collect the child tax credit can expect two more installment payments this year. The first is expected to arrive on or around November 15th and the second is expected to arrive around December 15th. While these installments will not be available in January, the remainder of this year’s child tax credit will be available to families once they file. their 2021 tax returns in 2022.
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