What would be the benefits for families of the Child Tax Credit if it is approved by Congress?

The United States went through a short-lived experiment in 2021 when Congress approved the enhanced Child Tax Credit for that fiscal year. The amount of money families could claim per child more than doubled in some cases giving a major financial boost to household incomes.

It also made the credit available to many more low- and moderate-income families by making the whole credit refundable and expanded the eligibility requirements. As part of the program, parents with dependents could receive monthly advance payments on the tax credit, or opt out and receive a lump sum when they filed the 2021 tax returns. This mechanism was devised to help smooth out recipients’ finances to help create financial stability which was especially helpful as the country was still recovering from the fallout of the covid-19 pandemic.

The experiment ended though when Congress failed to pass an extension of revamped tax credit. This was due to Republican lawmakers resistance and Democratic Senator Joe Manchin saying that he wouldn’t vote for his party’s legislative package that contained it. However, a partially revived version of the enhanced Child Tax Credit could possibly be available to American families to claim this year.

Lawmakers in Congress are reportedly nearing a deal on a $70 to $80 billion tax package that will give both parties something they want for their constituents. They hope to pass the legislation before the start of the 2024 tax season which officially kicks off 29 January.

What would be the benefits for families of the Child Tax Credit if it is approved by Congress?

The exact details of how the enhanced Child Tax Credit will be revived, as well as the overall tax package, are still being worked out. However, according to reports lawmakers want to target families that are most in need of the credit and currently qualify for only a portion of the tax credit or not at all.

Proponents of the Child Tax Credit would boost the refundable portion of the tax credit and incrementally lift the $1,600 cap on refundable credits. Taxpayers would also be able to use previous years’ incomes in the case that it would enable them to access larger benefits from the targeted relief. The advance payments that were a feature of the 2021 Child Tax Credit enhancement are not part of the current talks.

What impact did the 2021 Child Tax Credit have?

The reversal of fortunes for American families once the enhanced Child Tax Credit advance payments came into effect in July 2021 and then when they ended just six months later was stark. According to an analysis by the Center of Budget and Policy Priorities of US Census Bureau data when the Child Tax Credit expired at the end of 2021 there were 5.2 million more children below the poverty line in 2022 compared to the year before.

Had the revamped Child Tax Credit been extended the nonpartisan research and policy think tank estimates that about 3 million fewer children would have been in poverty in 2022. It pointed to three important changes that were made including providing the full credit to families, even those that had no income, boosting the credit amount and sending out monthly payments in advance. All three of which helped families afford the basics on a monthly basis.

ParentsTogether, a nonprofit organization, did a survey the month after the direct payments started going out and found that 50 percent of parents said the July 2021 payment “made a ‘huge difference’ to their family’s economic security.” Another 40 percent found the payments helpful.

Furthermore, financial anxiety among those that took part in the survey was reduced for 56 percent with the vast majority, 79 percent, using the funds immediately.