Child Tax Credit: Families get their last payment as its future remains uncertain

·Editor
·4 min read

The Internal Revenue Service is delivering the last monthly Child Tax Credit (CTC) payment Wednesday as the future of the tax benefit hangs in the balance on Capitol Hill.

The agency sent out $16 billion to the families of 61 million children, according to the Treasury Department, distributing approximately $93 billion to households across the country since the payments started in July. 

“Since July, monthly payments of the Child Tax Credit have helped millions of families pay for essentials such as food, childcare, and other household needs as those expenses arise,” said Treasury Secretary Janet Yellen in a statement. “The lives of tens of millions of children across the country have improved because families have received tax relief when they need it most.”

The expanded tax credit — which has been credited with sharply reducing child poverty — is set to expire after this year unless it's extended in new legislation, a move the White House supports.

"Millions of children who spent last Christmas in poverty will not bear that burden this holiday season," President Joe Biden tweeted on Sunday, touting the benefits of the credit.

WASHINGTON, DC - DECEMBER 13: Local residents, Cara Baldari and her nine-month-old daughter Evie (L) and Sarah Orrin-Vipond and her eight-month-old son Otto (R), join a rally in front of the U.S. Capitol December 13, 2021 in Washington, DC. ParentsTogether Action held a rally with parents, caregivers and children to urge passage of the Build Back Better legislation to extend the expanded Child Tax Credit that will expire on January 15, 2022. (Photo by Alex Wong/Getty Images)
Local residents, Cara Baldari and her nine-month-old daughter Evie (L) and Sarah Orrin-Vipond and her eight-month-old son Otto (R), join a rally in front of the U.S. Capitol December 13, 2021 in Washington, DC. ParentsTogether Action held a rally with parents, caregivers and children to urge passage of the Build Back Better legislation to extend the expanded Child Tax Credit. (Photo by Alex Wong/Getty Images)

The CTC was expanded under the American Rescue Plan passed earlier this year. The credit amount increased to $3,600 per child under 6 and $3,000 per child 6 to 17. It also was made fully refundable, allowing families to get the full credit even if that amount exceeds what they pay in taxes.

Another key change is the advanced payments. The IRS distributed half of the credit in advance beginning in July. Families that qualified for the credit received up to $300 per month for each child under 6 and up to $250 per month for each child 6 to 17. Families will get the other half of the credit after they file their taxes next year.

Eligible families who did not get the payments can claim the full amount of the credit on their 2021 federal tax return, including those who don’t normally need to file a return.

Single tax filers with children making up to $75,000 and joint filers with children making up to $150,000 are eligible for the full payment for each child. Single filers earning up to $90,000 and joint filer making up to $170,000 get a reduced amount. 

Most taxpayers didn't need to take action to get the monthly payments besides filing their 2020 tax return. Families that provided banking information through the IRS Non-Filers tool for stimulus payments automatically got the payments as well. Otherwise, families had to register online at the IRS.

US Treasury Check. Used for tax refunds and also the Covid-19/corona virus stimulus payments in 2020
US Treasury Check. Used for tax refunds and also the Covid-19/corona virus stimulus payments in 2020

Many Democratic lawmakers are pushing to include the credit's extension through at least 2022 in their Build Back Better plan that's still being negotiated. 

“The expanded Child Tax Credit is one of the largest-ever single-year tax cuts for families with children, helping to offset household costs when families need it most," Rep. Don Beyer (D-VA), who is also the chair of the Joint Economic Committee, said in a statement. "During this strong but uncertain recovery, the advance CTC payments have been a critical lifeline, bolstering household incomes for families across the country."

But some lawmakers, notably Sen. Joe Manchin (D-WV), have expressed reservations over the expansion due to its cost, which adds up to about $184 billion over 10 years if extended through next year.

Advocates point to how the benefit has meaningfully helped children of lower-income households. For instance, the bottom 20% of families making less than $21,300 will see their income increase 35% — getting an extra $4,470 on average, according to an analysis by the Institute for Taxation and Economic Policy.

Child poverty could be reduced by half this year because of the enhanced CTC, decreasing from 13.7% in 2020 to 6.5%, according to estimates by the Urban Institute.

“To cement this historic reduction in child poverty and promote sustained economic growth, Congress must immediately pass the Build Back Better Act," Beyer said.

Janna is the personal finance editor for Yahoo Finance. Follow her on Twitter @JannaHerron.

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