By: Joseph C. Johnson
The child tax credit, found in § 24 of the Internal Revenue Code, normally provides taxpayers with a credit that reduces their overall tax liability for a given taxable year.[1] This credit is applied per qualified child.[2] The amount of credit to be applied to the taxpayer’s tax liability is subject to a “phase-out” based on income—the value of the credit is reduced depending on how much the taxpayer’s income exceeds a certain threshold amount for that taxable year.[3]
The American Rescue Plan created significant, albeit temporary, changes to the child tax credit.[4] Beginning in July of 2021, the child tax credit became the means by which millions of American families received monthly payments to ease some of the financial pressure created by the COVID-19 pandemic.[5] These were advance monthly payments—as opposed to a lump sum upon filing taxes—that amounted to half of the total value due to the families under the child tax credit.[6] These families must now claim the remaining half when filing taxes for 2021 to receive the entire amount to which they are due.[7] In total, families can receive up to $3,600.00 for each child under the age of six years and up to $3,000.00 for each child between the ages of six years and seventeen years.[8]
The first payment alone from this expansion of the child tax credit kept approximately three million children from poverty in the month of July in 2021.[9] The July 2021 payment reached over fifty-nine million children, and reduced monthly child poverty from 15.8 percent to 11.9 percent.[10] The number of children that benefited from the American Rescue Plan’s expanded child tax credit increased to sixty-one million in August of 2021.[11] It is estimated that an additional two to three million children live in households that qualify to receive the child tax credit but for whom the Internal Revenue Service do not have relevant information to determine eligibility; thus, these households did not receive the payment.[12] Households that received the child tax credit payments most often spent the funds “on basic household needs such as food and utilities.”[13]
Notwithstanding the plummeting child poverty rates and the expansive number of families that benefitted from the advance payments, the final payment was sent in December of 2021.[14] The child tax credit will return to $2,000.00 per child for the 2022 taxable year without additional intervention from Congress.[15] Congress rejected to extend the increased child tax credit, and refused to extend the monthly payments as the means of delivering the credit to taxpayers, thereby limiting the number of payments to only six.[16] Accordingly, many families are struggling to accommodate a smaller monthly budget,[17] and monthly child poverty is “expected to be at its highest level since Biden took office.”[18]
President Biden’s “Build Back Better” agenda, which was not passed by Congress in December of 2021, proposed extending the expanded child tax credit system that was in use from July through December of 2021.[19] However, despite opposition from Republicans and Democratic Senator Joe Manchin of West Virginia,[20] several Democratic lawmakers have voiced continuing dedication to the agenda.[21] President Biden has suggested that separating the agenda into smaller chunks of legislation may prove to be more successful,[22] and House of Representatives Ways and Means Chair Richard Neal has conceded that there is “room here to negotiate,”[23] so all hope need not be lost in once again seeing advance child tax credit payments.
The vast number of taxpayers who were eligible to receive the expanded child tax credit in the second half of 2021 illustrates the widespread need for additional support while the COVID-19 pandemic continues. However, the failure to extend the payments into 2022 raises a concerning question: if keeping millions of children out of poverty while they suffer through a pandemic is not enough to motivate Congress to maintain the expanded payments, what will be?
[1] 26 U.S.C. § 24(a).
[2] Id.
[3] 26 U.S.C. § 24(b)(1).
[4] The American Rescue Plan, The White House, https://www.whitehouse.gov/wp-content/uploads/2021/03/American-Rescue-Plan-Fact-Sheet.pdf (last visited Jan. 24, 2022).
[5] Scott Horsely, How Biden’s Plan Could Help Reshape The Finances Of American Families, NPR (Mar. 13, 2021, 5:00 AM), https://www.npr.org/2021/03/13/976554398/how-bidens-plan-could-help-reshape-the-finances-of-american-families.
[6] Advance Child Tax Credit Payments in 2021, IRS, https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021 (last updated Jan. 11, 2022).
[7] Id.
[8] See 26 U.S.C. § 24(i)(3). Section 24(i)(3) reflects the 2021 amounts, which are increased from the initial $1,000.00 value seen in 26 U.S.C. § 24(a), and further increased above the amount of $2,000.00 found in 26 U.S.C. § 24(h)(2) as a special rule for years 2018 through 2025.
[9] Zachary Parolin et al., Monthly Poverty Rates among Children after the Expansion of the Child Tax Credit, Poverty & Soc. Pol’y Brief, Aug. 20, 2021 at 1, 1.
[10] Id.
[11] Greg Iacurci, Child tax credit lifted 3 million kids from poverty in July, CNBC (Aug. 25, 2021 1:35 PM), https://www.cnbc.com/2021/08/25/child-tax-credit-lifted-3-million-kids-from-poverty-in-july.html.
[12] Id.
[13] Catherine Rampell, A eulogy for Biden’s expanded child tax credit. Maybe., Wash. Post (Jan. 20, 2022, 6:01 PM), https://www.washingtonpost.com/opinions/2022/01/20/eulogy-bidens-expanded-child-tax-credit-maybe/.
[14] Katie Teague & Peter Butler, Child tax credit: How to get your remaining money in 2022, CNET (Jan. 21, 2022, 1:15 PM), https://www.cnet.com/personal-finance/child-tax-credit-how-to-get-your-remaining-money-in-2022/.
[15] Lance Lambert, The monthly child tax credit payments are done—here’s what will replace it, Fortune (Jan. 18, 2022, 7:00 AM), https://fortune.com/2022/01/18/monthly-child-tax-credit-payments-end-build-back-better-manchin/.
[16] Id.
[17] Deepa Shivaram, Families are in distress after the first month without the expanded child tax credit, NPR (Jan. 21, 2022, 5:01 AM), https://www.npr.org/2022/01/21/1074413273/end-expanded-child-tax-credit-families-effects.
[18] Rampell, supra note 13.
[19] Shivaram, supra note 17.
[20] Id.
[21] Brian Faler, Some Democrats not ready to give up on child credit, Politico (Jan. 20, 2022, 2:16 PM), https://www.politico.com/news/2022/01/20/democrats-senate-child-tax-credit-527499.
[22] Shivaram, supra note 17.
[23] Faler, supra note 21.