What you need to know about the Child Tax Credit

by | Aug 13, 2021 | Economy, Policy

One of the most important elements of the American Rescue Plan was the enhanced child tax credit and today the second round is going out. Thanks to the $1.9 trillion stimulus package, which every Republican in Congress voted against, qualifying families will receive $250 a month per child aged 6-17 and $300 per child under the age of 6. That rounds out to $3,000 and $3,600 respectively for the full year, up from the previous maximum of $2,000

Typically, the payments go out on the fifteenth of each month although this month they go out on the thirteenth because August 15 falls on a weekend. 

To qualify for the full amount, taxpayers must have an income under $75,000 for singles, $12,500 for heads of households, and $150,000 for married couples filing jointly. For every $1,000 over, the credit decreases by $50. As long as you filed your 2019 or 2020 tax return you don’t need to do anything to receive the credit, although if you had or will have a child this year you should let the IRS know through an online portal that will be available later this year.

The child tax credit has been around for decades, but the American Rescue Plan not only increased the amount of money, it also made the payments monthly and automatic for the first time. Another major change was to make the credit fully refundable, meaning those who don’t owe any federal taxes can still receive money. Previously, some families that didn’t owe taxes were ineligible meaning it primarily went to middle class families, but now many low-income families will also benefit.

An estimated 36 million families, including 3.4 million in Texas, are eligible. Unfortunately, many low-income households that are not required to file tax returns may not know about or receive the credit, with one survey finding that almost 80 percent of nonfilers had heard some, little, or nothing about the child tax credit. That same survey found that many nonfilers are unaware that they need to take additional steps with the IRS to receive the credit. 

Nevertheless, the data indicates that the expanded child tax credit is already having a positive impact after just the first round. The Census Bureau found that the number of adults in households with children reporting food insufficiency and financial hardship dropped after the first checks went out. As there was not a similar decline among adults in households without children, it is likely that the child tax credit is working. Experts say that the payments could end up reducing the child poverty rate by almost half.

Under the American Rescue Plan, the enhanced child tax credit would last for only one year. However, the $3.5 trillion budget resolution that Senate Democrats recently endorsed includes an extension for the child tax credit, and there are calls to make it permanent.

A major error made by Democrats during the Obama administration was that they didn’t ensure that voters knew about the new benefits they were receiving. In fact, sometimes these policies were deliberately designed to be invisible. Then in the 2010 midterms they got hammered by Republicans. This time, facing an uphill battle in 2022, Democrats appear determined not to make the same mistake with policies like the child tax credit.      

“Texas Democrats like Lizzie Fletcher do the work every day to support hard-working families in Texas,” said DCCC spokesperson Monica Robinson. “These monthly Child Tax Credit payments will help lift thousands of children out of poverty and will provide relief for parents who are recovering from this historic crisis. House Democrats understand the realities that middle-class families face, and once again they’re delivering on their promises to get our country back on track.”

Photo: Grace Cary / Getty Images

Washington Correspondent | + posts

William serves as the Washington Correspondent for the Texas Signal, where he primarily writes about Congress and other federal issues that affect Texas. A graduate of Colorado College, William has worked on Democratic campaigns in Texas, Colorado, and North Carolina. He is an internet meme expert.

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