Child tax credit: millions of parents could soon receive up to $ 3,600 per child

The US $ 1.9 trillion bailout, enacted Thursday by President Joe Biden, aims to strengthen the economy hit by pandemic through fiscal measures such as the expansion of unemployment assistance and direct stimulus measures. But the legislation also includes a relatively new measure that offers some form of guaranteed income for parents of children under the age of 18, or what one expert calls “a small step towards universal basic income”.

That’s because the relief bill includes an overhaul of the Child Tax Credit (CTC), a 24-year part of the country’s tax law that today mainly benefits middle and high-income families. . The American Rescue Plan revises the CTC by increasing benefits from $ 2,000 per year to $ 3,600 per child. It also includes more low-income households and distributes the benefits of credit through monthly cash payments.

These changes could have a major impact on millions of families, especially low-income households and those whose incomes can fluctuate from month to month. More than 4 million children could be lifted out of poverty, especially children from black or Latin American families, according to the Center’s analysis on budget and policy priorities.

Expanding the CTC will require approximately $ 100 billion in additional federal spending. Columbia University researchers estimate that it will generate more than $ 800 billion in benefits for society through better children’s health and their long-term outcomes.

“It’s a big deal,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “This is one of the most important steps we have taken to lift children out of poverty. In many other countries, the government subsidizes families with children because they represent the ultimate investment in the future.

Rich countries like Sweden and Ireland offer “family allowances” – direct payments to families to help them raise their children. With the overhaul of the CTC, the United States will join these countries – albeit temporarily – in providing direct assistance on a recurring basis to families with children.

“It puts us in the same league as other Western capitalist democracies,” Wessel added. “This is a small step towards universal basic income, or guaranteed income, and it will be interesting to see how it works in practice and how it is perceived by the public.”

Up to $ 3,600

The CLC has helped millions of families over the years, but its unique design sometimes allowed it to bypass the poorest families. According to the Brookings Institution, families who owed little or no income tax were only eligible for $ 1,400 per child, rather than the $ 2,000 benefit provided to wealthier families.

About 27 million children currently do not receive the full tax credit, said Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities. “The current conception of the child tax credit is upside down,” Cox added.

This had an unbalanced effect, as low-income families were less likely than richer families to benefit from the tax credit. In fact, about 40% of the tax credit went to families earning over $ 100,000, while only 15% went to households with incomes below $ 30,000, Brookings noted.

“We want the tax code to improve our low-income families, and it didn’t,” said Joanna Ain, deputy director of policy at Prosperity Now, a nonprofit focused on expanding businesses. economic opportunities for low-income households.

As part of the American Rescue Plan, the CTC will be increased to $ 3,600 for each child under age 6 and $ 3,000 for each child ages 6 to 17 (the credit previously excluded children age 17). income families, marking a change from its previous limits for poor families.

The provision also includes income thresholds for high income households, similar to the income thresholds for stimulus checks. Single taxpayers earning up to $ 75,000 and married couples earning up to $ 150,000 would receive the full credit of $ 3,000 or $ 3,600 per child, but payments would be reduced for those with incomes above these thresholds. .

Families who earn too much to qualify for the expanded tax credits could still claim the basic $ 2,000 credit for their children, provided their incomes are below the current thresholds of $ 200,000 for single taxpayers and $ 400. $ 000 for married couples.

Monthly payments – for a while

Aside from these changes, the CLC will be partially paid on a monthly basis, rather than claimed once a year when people file their tax returns. In other words, a family with two children under the age of 6 would be entitled to $ 7,200 in CTC payments, or $ 600 in monthly payments.

But there’s a catch: Monthly payments will only work from July to December of this year, with the other half of the CTC being paid when people file their tax returns. In other words, households would receive six months of monthly income and then receive the rest of the CTC through their tax refund.

Even so, receiving a guaranteed monthly income for half of 2021 could be a game-changer for many low-income families, experts say. Low-income households have been particularly affected by the economic impact of the pandemic, in part because they are more likely to work in jobs that couldn’t switch to remote work.

“We see so much volatility in a person’s paycheck throughout the year, especially the paychecks of low-income families,” Ain said. “The stability of having a sum of money that comes in each month will improve their quality of life.”

The expansion of the child tax credit is only designed for one year, which means the program could revert to its previous form in 2022. But policy experts hope lawmakers can extend the expansion, especially if it proves popular with voters. If the provision is not extended, millions of families could see the end of recurring aid after the holidays.

Certainly, the Biden administration and some Congressional Democrats have recognized their goal of make the expansion permanentt as part of their Build Back Better program, indicating that they see an investment in children paying off through a stronger economy overall.

“These things don’t tend to go away” once they’re adopted, Wessel noted.

Sarah Ewall-Wice of CBS News contributed to this report.