End of child tax credit will push 10 million children back into poverty
Washington, DC area residents Cara Baldari and her 9-month-old daughter Evie (left) and Sarah Orrin-Vipond and her 8-month-old son Otto (right), join a rally outside the U.S. Capitol United on December 31. 13, 2021.
Alex Wong | Getty Images
Senator Joe Manchin, the conservative Democrat of West Virginia, said on Sunday he would not support the Biden administration’s $ 1.75 trillion Build Back Better program, likely killing the bill and with it extension of the improved child tax credit.
Without the improved credit, nearly 10 million children are at risk of falling below the poverty line or falling even deeper into poverty, according to an analysis by the Center on Budget and Policy Priorities, a progressive think tank.
Another 27 million will lose all or part of the credit, including about half of black and Latino children and those in rural areas. The 65 million children eligible for the credit will receive less money in the new year.
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“I really fear that families will be surprised, and unlike July when [the child tax credit] would have been a positive surprise, this time it will be a negative surprise, âsaid Elaine Maag, senior research associate at the Urban-Brookings Tax Policy Center.
Enhanced child tax credit
The American Rescue Plan, enacted in March, expanded the existing child tax credit, increasing the amount and scope of the benefit.
The credit was increased from $ 2,000 to $ 3,000 with a bonus of $ 600 for children under 6 for the 2021 tax year. It also established monthly payments, which began in July and ended. end in December with deposits of $ 300 for children under 6 and $ 250 for those aged 6 to 17. The second half will come when families file the 2021 tax returns next year.
The enhanced credit also reached more children than ever before because it became fully refundable, meaning families with no earned income could still claim the benefit for eligible children.
In just a few months of families receiving payments, data showed how much improved credit has helped. Financial instability decreased, more children had enough to eat, and some parents were even able to work more.
Maintaining the enhanced benefit could have a significant impact on child poverty. Maintaining credit beyond 2021 would reduce child poverty to around 8.4% from 14.2%, a drop of around 40%, according to a study by the Urban Institute.
Of course, the child tax credit will not go away entirely. Instead, families will still be able to claim the regular child tax credit when they file taxes from 2022 to 2023.
But this credit is much smaller, does not come with monthly payments, and will not reach as many children as the enhanced benefit.
Because of these changes, thousands of dollars will suddenly disappear from family budgets overnight.
For example, a single mother who works full-time at the federal minimum wage and has a toddler and a sophomore receives $ 6,600 this year through the Child Tax Credit, said Kris Cox, deputy director of the federal tax policy at the Center on Budget and Political Priorities.
If the enhanced credit expires at the end of the year, the same family would only get $ 1,800 from the child tax credit in 2022. That’s a difference of $ 4,800.
âIt’s really big money that could be used to support this family,â Cox said.
Additionally, the data showed that parents largely spent the monthly payments on necessities such as groceries, school supplies, and increased savings.
âThe monthly payments provide support to families throughout the year,â Cox said. âRent, electricity, food, child care, transportation – all of these costs are monthly. “
What families can do now
Families do not have a lot of time to prepare for the due date of the monthly payments. The last check was issued on December 15th.
What they can do now is review and revise their January budget, Maag said.
âFamilies do this all the time – they juggle the bills, they choose which ones to pay, they forgo opportunities in order to make sure they have enough money to cover their needs next month,â Maag said. .
They can also prepare to file their 2021 taxes to get the second half of the credit as early as possible next year. Part of that process is making sure they receive all of the payments owed to them this year, said Trenda Hackett, CPA and technical writer for the tax and accounting business at Thomson Reuters.