Imagine getting an annual payment of $3,600! This might soon be a reality for some American families, as a proposal to increase the Child Tax Credit (CTC) to this amount is currently in the works. This initiative is being spearheaded by six Democratic Senators: Sherrod Brown of Ohio, Michael Bennet of Colorado, Cory Booker of New Jersey, Raphael Warnock of Georgia, Ron Wyden of Oregon, and Dick Durbin of Illinois. Their mission?
To push for the Working Families Tax Relief Act, a move designed to lighten the tax burden for workers while expanding both the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC). The idea behind these programs, according to a press release, is to provide millions of middle-class Americans with extra support, and ensure that parents’ hard work translates into a better quality of life.
$3,600 Yearly Payments in the U.S Eligibility Criteria Child Tax Credit
“Families are working harder than ever, but they’re not seeing the rewards,” says Senator Brown. “Rising corporate prices have boosted their profits, but left families struggling with the ever-increasing cost of childcare. No matter how hard parents work, it’s a struggle to keep up. Our plan would put more money back in the pockets of these hardworking families and help parents cover the additional costs of raising children.”
The expanded CTC has already made a significant difference to American families. Introduced as part of the American Rescue Plan to support families hit by the pandemic, it increased the number of families eligible for the CTC – including those who didn’t file a tax return due to low income. The credit also became fully refundable and the amounts increased: $3,600 for children under six, and $3,000 for dependent children aged 6 to 17.
“The expanded Child Tax Credit has already helped 61 million American children, nearly halved child poverty, and reduced food insecurity by a quarter for families,” said Senator Bennet.
“We should never have let the expansion of the Child Tax Credit and the Earned Income Tax Credit lapse,” he continued. “Reinstating these tax cuts is a policy that is pro-family, pro-work, and pro-democracy. It’s high time we act.”However, now that the pandemic is over, the CTC has reverted to its previous state. That’s why these senators are advocating to keep the expanded version of the CTC in place for the years to come.
What is the Child Tax Credit (CTC)?
The Child Tax Credit (CTC) is a tax benefit designed to assist families raising children. It provides a tax break to eligible families, even if they do not normally file a tax retururn:
- Claiming the Credit: To claim the Child Tax Credit, you need to enter your children and other dependents on Form 1040, U.S. Individual Income Tax Return, and attach a completed Schedule 8812, Credits for Qualifying Children and Other Dependents.
- Expansion under the American Rescue Plan: The American Rescue Plan, signed into law on March 11, 2021, expanded the Child Tax Credit for 2021. It increased the credit from $2,000 per child to $3,000 per child for children ages 6 to 16, and to $3,600 per child for children under the age of six. The age limit was also raised from 16 to 17. The income limits for receiving the full credit are $150,000 for couples and $112,500 for single parents (Head of Household).
- Monthly Payments: As of July 15th, 2021, most families are automatically receiving monthly payments of $250 or $300 per child without having to take any action [1]. These monthly payments are an advance of the Child Tax Credit for 2021, which is normally claimed when filing taxes.
- Eligibility: To qualify for the Child Tax Credit, the child must be a “qualifying child” and meet certain criteria, including having a valid Social Security Number and living with the taxpayer for more than half of the tax year.
- Refundable Credit: The Child Tax Credit is partially refundable, meaning that even if the credit exceeds the amount of tax owed, a portion of it may still be refunded to the taxpayer through the Additional Child Tax Credit (ACTC).
- Future Extensions: The American Rescue Plan expanded the Child Tax Credit for 2021 only, but there are proposals to extend the increased credit in the future.
What is the difference between the Child Tax Credit and the Earned Income Tax Credit?
The Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC) are both tax credits that can help reduce the amount of taxes owed and potentially increase a taxpayer’s refund, The differences between the two:
- Eligibility:
- EITC: The EITC is available to low- to moderate-income workers and families. The eligibility criteria include income limits, marital status, and the number of qualifying children. The credit is also available to individuals without children, but the amount of the credit is lower in that case.
- CTC: The CTC is available to working families with dependent children under the age of 17 at the end of the tax year. There is an income limit for claiming the credit, and the credit amount is per eligible child.
- Refundability:
- EITC: The EITC is a refundable credit, which means that if the credit exceeds the taxpayer’s tax liability, the IRS will refund the balance to the taxpayer.
- CTC: The CTC includes a refundable component called the Additional Child Tax Credit (ACTC). If the CTC exceeds the taxpayer’s tax liability, they can claim the ACTC to receive a refund of a portion of the remaining credit amount.
- Calculation:
- EITC: The amount of the EITC depends on the taxpayer’s income, marital status, and number of qualifying children. The credit rises with earned income until reaching a maximum level and then gradually phases out at higher income levels.
- CTC: The CTC is a fixed per-child amount, and the credit phases out at higher income levels. The first $3,000 in earnings does not count when determining the CTC, and families receive a refund equal to 15 percent of their earnings above $3,000, up to the credit’s full value.
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