When the American Rescue Plan was enacted in 2021 it took the Child Tax Credit and expanded its size and eligibility, made it “fully refundable” (meaning it would even go to families that did not owe taxes to the government because it could created a net tax refund that easy payable to them), and began delivering its benefits as monthly payments delivered directly into bank accounts.
Congressman Adam Schiff explained:
Specifically, the Child Tax Credit expansion:
- Increased the tax credit from $2,000 to $3,600 per child ages 0-6
- Increased the tax credit from $2,000 to $3,000 per child ages 6+
- Raised the age limit from 16 to 17
- Made the tax credit fully refundable and removed the earnings requirement
For families whose struggles had been exacerbated by the pandemic, the expanded credit proved to be a literal life saver, and — in a significant departure from traditional welfare programs — left it to the parents to decide where that money was most needed. For some, it went to food; for some, getting their kids to the dentist; for some, paying for child care.
But one key political player saw the expanded Child Tax Credit in very different terms. West Virginia Sen Joe Manchin, who had repeatedly upended the Democrats’ ambitious social spending plans and whose support was crucial to whatever legislative success his party would achieve, was an adamant opponent of the credit. Without work requirements, he argued, people would simply opt out of the work force. Ultimately, given that success or failure rode on Manchin’s vote, party leaders didn’t include the program in their last-ditch effort to salvage Biden’s agenda, the Inflation Reduction Act.
The impact of the end of the expanded Child Tax Credit was swift and dramatic. By one count, some 4 million children returned to poverty. And according to one prominent Democratic pollster, Stan Greenberg, its expiration also may hurt Democratic prospects in the fall campaign
According to an analysis from the Tax Policy Center, a collaboration between the Urban Institute and the Brookings Institution, more than 90% of families with children under the age of 18 will receive some benefit from the new law. Advocates pointed to research that the expanded credit could reduce child poverty in the U.S. by 45% and have called for the credits to be made permanent.”
“Time is running out to claim the expanded Child Tax Credit that could bring an eligible family as much as $3,600 per child under the age of 6.
“Taxpayers who are paying someone to take care of their children or another member of household while they work, may qualify for child and dependent care credit regardless of their income. For tax year 2021, the maximum eligible expense for this credit is $8,000 for one child and $16,000 for two or more. Depending on their income, taxpayers could write off up to 50% of these expenses.”
For the purposes of this credit, the Internal Revenue Service (IRS) defines a qualifying person as:
- A taxpayer’s dependent who is under age 13 when the care is provided.
- A taxpayer’s spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.
- Someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months and either:
- The qualifying person was the taxpayer’s dependent or
- They would have been the taxpayer’s dependent except for one of the following:
- The qualifying person received gross income of $4,300 or more
- The qualifying person filed a joint return
- The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else’s return”
The Child Tax Credit: Legislative History Congressional research Service
Understanding the child and dependent care credit IRS official policy
Yes – it should be expanded again
*Studies estimate the annual cost of child poverty in the U.S. is as much as $1.1 trillion.
*It has lifted millions of children out of poverty
*Reducing child poverty directly increases healthy brain development
*In a tight labor market – the tax credits keep Americans in the workforce
*The Tax credit puts 19 billion dollars into local communities and small businesses each month
*The Child Tax Credits are the first step towards a “Basic Universal Income”
*Basic Universal income works
*The CTC will encourage people not to work, it reduces incentives to reduce poverty in the long run
*The CTC is extremely expensive
*States have been motivated to find their own solutions – and they won’t increase the federal debt
*It is a form of universal basic income
*The “substitution effect” will allow choices that decrease income and growth
Pros and Cons of Expanding the Child Tax Credit Congressional Digest