Many families are in need of child tax credit payments now.
Sarah Tew/CNET
Starting last summer, families who qualified for the enhanced child tax credit received up to $300 per eligible child. This was part of an effort by Congress and the White House to steady a US economy wobbling from the ongoing pandemic. The expansion of the child tax credit payments under the American Rescue Plan looped in roughly 90% of children and over the last six months of 2021 lifted millions of children out of poverty.
The expansion ran for just six months, and the last advance child tax credit payment went out in December. Since then, the number of children in poverty has significantly increased. During his State of the Union address last week, President Joe Biden once again asked Congress to extend the payments “so no one has to raise a family in poverty.”
The final enhanced child tax credit payment is arriving with tax refunds this year. The credit will then revert back to its original amount of $2,000 to be claimed in 2023. According to the White House, not only could an extension to the child tax credit payments help families but could also serve as part of a bigger picture to support the economy and boost employment.
We’ll explain what it means for you if the enhanced child tax credit payments are extended. For more, here are six reasons why your tax refund could be late. Also, these 10 tax changes could help maximize your refund.
It could bring millions of children out of poverty
When the child tax credit came to an end in December, roughly 3.7 million more children went into poverty in January. On average, one in seven children lives in poverty, according to Elaine Maag, principal research associate at the Urban Institute. That comes out to roughly 13 million children.
If the enhanced child tax credit payments were to be extended — and be fully refundable — it could drop child poverty by 40%, or down to 9 million children, Maag told CNET.
It could help to offset the effects of inflation
Inflation increased by 7.5% in January this year, just as the monthly child tax credit program ended. For families who once were receiving up to $300 per child per month to now nothing, these price increases on groceries and gas can be scary.
However, if the child tax credit payments are extended, those families wouldn’t feel as crunched for money and it would help to offset inflation, Maag said. If they’re in a better financial position, they won’t be as affected by the price increases.
If it’s not extended, those families might face food insufficiency and have difficulties paying their rent and utilities.
It could bring a rise in employment
For many families, one parent has to stay home to take care of their children because they can’t afford child care. But with that extra money coming in each month, it could give parents the wiggle room they need to pay for a babysitter or care facility so both can go to work. This could result in a rise in employment throughout the US, Maag said.
On the other hand, some secondary household earners might work less or not at all if there’s additional income to support their family because they wouldn’t need to pay for child care.
What if there’s a work requirement to receive the payments?
One of the reasons the enhanced child tax credit payments weren’t extended last year is because there wasn’t a work requirement. Sen. Joe Manchin, a West Virginia Democrat, said he’d prefer parents only be eligible for the credit if they’re working and file taxes. His vote is critical to push a renewal of the program forward.
However, a work requirement leaves out many families in need. For instance, those who can’t afford to work due to child care costs are already in a bind but wouldn’t be eligible to receive the credit. Also, parents who lose their jobs would also lose the money they’re getting from the credit.
Maag said the child tax credit is more likely to aid parents going back to work if there’s no work requirement since the existence of the credit is not a key factor to not work.
A child tax credit extension could help bring millions of children out of poverty.
Sarah Tew/CNET
How could bringing the child care rate down to 7% of income help?
During his remarks to Congress, Biden said cutting the cost of child care could help change the standard of living for working parents. “Middle-class and working folks shouldn’t have to pay more than 7% of their income to care for their young children,” he said.
Bringing the child care rate down to no more than 7%, parents could allocate more of their money to other basic needs instead of child care. Maag said the cost of child care would likely increase but it wouldn’t be as overwhelming.
Right now, many parents can’t go to work because they can’t afford quality child care, and some are relying on neighbors and other family members who aren’t as reliable. Cheaper child care expenses would significantly help parents financially.
Will an extension cost taxpayers more money?
Yes, it will cost people more money in the short term, Maag said, but income for children is an investment. Here’s why: Children in poverty, on average, tend to have worse health outcomes because they’re not receiving the right amount of nutrition. They also have lower education outcomes for the same reason and are less likely to graduate from college. If kids grow up under these circumstances, they have a lesser chance of getting a good-paying job in the future.
Therefore, it’s more expensive in the long term to not deliver those payments to families in need, Maag said.
What are the prospects for an extension?
Biden’s Build Back Better plan, which would have included an extension to the child tax credit, appears dead. But Biden is pushing for Congress to adopt individual pieces of the economic proposal, which would include extending the enhanced payments.
Some senators have expressed interest in passing a stand-alone bill without adding a work requirement. However, Manchin would need to be on board to pass an extension of the credit in the Senate.
For more information, here’s how child tax credit payments affect your taxes. Also, you need this IRS letter to get the rest of your child tax credit money.