Biden’s proposed Child Tax Credit extension: See if you’d qualify for the ramped-up credit
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American parents might not have to give up this year’s enhanced Child Tax Credit (CTC) payments after all — at least until 2026.
President Joe Biden in a late Wednesday address officially unveiled the American Families Plan, which proposes taxing corporations and the ultra-rich to help offset $1 trillion in education and child care-related investments and $800 billion worth of tax breaks.
Among those tax credits is a four-year extension of the CTC increases that were included in Biden’s $1.9 trillion American Rescue Plan from mid-March. The bill also proposes making the credit permanently fully refundable, according to a White House fact sheet.
How the Child Tax Credit (CTC) changed in 2021
The March COVID-19 relief bill offered eligible families $3,600 per child ages 5 or younger and $3,000 per child between 6 and 17, instead of the original $2,000 amount for all child dependents under 17.
Biden also directed the IRS to distribute half of families’ eligible amounts through recurring payments, most likely on a once-a-month basis for six months.
Another key change: Instead of just 70 percent (or $1,400) of the credit being fully refundable if it exceeded what taxpayers owed back in levies during the following tax season, the American Rescue Plan made the credit fully refundable for 2021. That meant that Americans could claim the entire credit, regardless of their income levels.
Who’s eligible for the ramped-up CTC
Biden’s American Rescue Plan kept eligibility requirements the same for the original $2,000 payment but made it tougher to qualify for the extra payment worth $1,000 or $1,600.
|Filing status||Income limits for $2,000 payment||Income limits for extra $1,000 or $1,600|
|Head of household||$200,000||$112,500|
For example, a married couple earning a combined $100,000 a year with two children under age 17 and one child under age 6 would be eligible for a $9,600 total tax credit, half of which ($4,800) would be split up in a monthly payment worth $800 for six months.Payments are phased out by $50 per every $1,000 over the income threshold.
How the American Families Plan will change the CTC expansion
If the American Families Plan passes, families would have already had a taste of how the CTC expansions will work. The bill keeps the program’s temporary expanded structure intact.The only CTC changes under the American Families Plan would be:
- Making the credit fully refundable permanently, instead of just through 2021.
- Boosting the CTC amounts through 2025.
What you need to know
The delivery timeline of those payments is still uncertain. A White House fact sheet suggested the Biden administration wants to deliver the CTC credit on a “regular” basis instead of just as a refund during tax season, though it stopped short of specifying how frequent. That’s likely because the IRS’ bandwidth will determine whether they can manage to make payments on a monthly or even quarterly basis.
IRS Commissioner Chuck Rettig threw up a caution flag during a March 19 appearance, saying the agency was slammed with delivering stimulus checks and tax refunds on a timely basis, which could consequently slow down the CTC delivery timeline. The official has since been more optimistic, saying in an April 13 appearance that the IRS is ready to begin distributing the six months’ worth of CTC payments starting in July.
Threatening the American Families Plan’s passage, a growing chorus of lawmakers are voicing concerns about massive amounts of government stimulus, with Congress already throwing out a whopping $3 trillion at the coronavirus crisis since January. Still, the CTC extensions acknowledge proposals from left-leaning legislators, who have been pushing Biden to at least permanently make the tax credit fully refundable.
The American Families Plan complements a separate $2.3 trillion infrastructure package known as the American Jobs Plan. Deficit-minded lawmakers could pick bits and pieces from both packages. Considering that the CTC expansions already made it through Congress once, its path to passage might be more realistic than other proposals in the bill, though time will tell as lawmakers speed up negotiations in the coming weeks.
This year’s CTC expansions decreased the share of children living in poverty from 13.7 percent to 11.3 percent, according to calculations from the joint Brookings Institution-Urban Institute’s Tax Policy Center. Separate estimates suggest that over 90 percent of families with children are set to receive an average benefit worth $4,380.
Figures provided by the White House show that the expanded credit includes 66 million children.
“Pressing for trillions in additional federal spending, Biden is walking tightropes on several fronts. This includes the most difficult problem of how to fund these ambitious plans,” says Mark Hamrick, Bankrate senior economic analyst and Washington bureau chief. “Members of both parties in Washington are mindful that the next election cycle typically looms sooner rather than later. Their best hope is to deliver sooner rather than later on legislation amid what’s likely to be remarkably strong economic growth in the coming months.”