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It has not been easy for most American families during the Covid-19 pandemic. From lost jobs and reduced incomes to work and school from home, Americans are struggling to keep afloat financially. In fact, in a 2021 National Endowment for Financial Education (NEFE) survey, nearly 7 out of 10 people suffered a financial setback in 2020.
The Biden Administration has been clear from the beginning that it wants to address these issues in any stimulus bill it puts forth. That is why on Monday, February 7th, House Democrats are going to be unveiling a new and improved child tax credit as part of the President’s $1.9 trillion dollar relief package. The credit will be $3,000 per child ages 6 to 17 and $3,600 for children under age 6. The credit will be based on the taxpayer’s 2020 income.
However, this new credit is going to be a bit different than how child tax credits have historically operated. In the past, the child tax credit has been taken as a lump sum on an individual or family’s income tax return.
The new legislation would have taxpayers who qualify receive a payment monthly from the IRS for $250 or $300 depending on the child’s or children’s age. The benefit of that is that it can help families on a monthly basis mitigate some of the costs of raising their children.
“The pandemic is driving families deeper and deeper into poverty, and it’s devastating. We are making the Child Tax Credit more generous, more accessible, and by paying it out monthly, this money is going to be the difference in a roof over someone’s head or food on their table,” said Chairman of the Ways and Means Committee Richard Neal (D-MA) in a statement. Neal is part of a group of House Democrats who are helping to draft the bill.
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Game Changer
This might be a game changer for many American families. In a report published in 2019, the Federal Reserve found that 40% of all Americans struggle to cover an unexpected $400 expense. By providing a monthly amount to come into the household budget, it is a way to put money back into the hands of the taxpayers who need it and in a way that can help them handle their monthly expenses.
The Child Tax Credit is a great way to do this. In recent years, the Child Tax Credit has been expanded to help a greater number of American families. The most recent incarnation of this credit came from the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA expanded the credit’s eligibility to help more Americans. Single filers with incomes of $200,000 or less and couples filing jointly with $400,000 of adjusted gross income or less, could get a credit for each child under age 17 in the amount of $2,000 per child.
The new Child Tax Credit will be targeted to a smaller group of taxpayers. Eligible taxpayers will be those single filers who earn $75,000 or less and married filers with incomes of $150,000 or less. Further, the credit as proposed, would start in July and last for 12 months.
Could Improve Lives
But there is already talk that this credit could become permanent. That could have a long-term positive impact on the US economy. The United States has been criticized in recent years in spending less on its children than any other developed nation.
Further, it seems that the Democrats are not the only one focused on the Child Tax Credit. Senator Mitt Romney (R-Utah) unveiled his own version of an updated child tax credit called The Family Security Act. However, his plan is different than the one House Democrats have put forth. The Romney plan would repeal the current Child Tax Credit and replace it with one that would provide $4,200 for each child under 6 and $3,000 for children ages 6 to 17.
But like the House proposal, it would pay monthly. The IRS would true up the amounts on the taxpayer’s annual tax return.
Journey Ahead
Both proposals will have a long road in front of them before they reach the average American. But with the need to provide stimulus relief, this might also be a long term solution to help many Americans whether the pandemic and thrive in the years ahead.