Taxes 2022: What families should know about the Child Tax Credit

One of the big changes this tax season was the temporary expansion of the Child Tax Credit that broadened the benefit in three key ways that helped many families in need.

First, the maximum credit amount was raised from $2,000 to $3,000 for each child ages 6 to 17 and to $3,600 for children under the age of 6.

“We included 17-year-old children for the first time. Before 2021, only 16-year-olds could receive the credit. That was the highest age,” Elaine Maag, a senior fellow at the Urban-Brookings Tax Policy Center, recently told Yahoo Finance Live (video above). “The other thing that happened is we also delivered half of the credit in advance of filing your tax return. So almost all families with children started getting payments in July, and they received a monthly payment from July to December.”

Approximately 35 million taxpayers with 60 million children received half of the tax credit in monthly installments from the Internal Revenue Service (IRS) in 2021. Under the American Rescue Plan passed in March of last year, eligible families received up to $300 for each child under 5, and up to $250 for each child between the ages of six and 17.

“For families with children, if you received advance payments, you still have half of your credit to claim because, at most, you received half the credit," Maag said. “For families who have children at home who did not receive the credit, you're eligible for the full credit. And you'll get that by claiming it on your tax return."

Lawmakers also allowed the Child Tax Credit to be fully refundable. This last rule eliminated work requirements, which allowed the most vulnerable to qualify for the credit, helping to lift approximately four million children from deep poverty.

“This most important (change) for low-income families, is that the credit was made fully refundable,” Maag said. “In the past, the credit phased in as earnings increased, and then hit a cap. But now, the full amount of the credit is available to even the lowest income families.”

President Joe Biden recently urged Congress to expand the Child Tax Credit during his State of the Union address, citing the enhanced credit’s effects in reducing poverty for millions of households.

“In a typical year, roughly 1 in 7 children lives in poverty. And we know that's bad for children, for a variety of reasons,” Maag said. “When the credits started going out, poverty was reduced for families with children by about 40%. But more than that, we saw immediate effects.”

Food insecurity dropped by about 25%, Maag said, and families used the funds to pay for food, utilities, and basic items. Others paid down debt, she said.

“So those payments were important for financial stability when they were being delivered,” Maag said, “but also getting caught up from being behind.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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