Actually the ruination may well extend beyond Christmas or whatever winter holiday America’s low-income children observe (or don’t). The expansion of the Child Tax Credit created under the American Rescue Plan Act expires on December 31, 2021. The final advance payment of the expanded Child Tax Credit hit taxpayers’ bank accounts yesterday.
The expansion increased the amount of the Child Tax Credit from $2,000 per child to $3,000 per child ages 6 through 17 and from $2,000 to $3,600 for children 5 and under. The expansion added an extra year of eligibility for low-income minors (previously eligibility for the credit ended at age 16). Other enhancements to the credit included making it fully refundable for 2021 and paying half of the expected credit amount as an advance direct payment to taxpayers in monthly installments from July through December 2021. In other words a taxpayer did not have to owe federal income tax (or even file a return) to be eligible for the full credit and receive the full amount of advance payments. According to a recent report by the Center on Budget and Policy Priorities:
“The enhanced tax credit has enabled parents across the country to pay for food, clothing, housing, and other basic necessities and is expected to lower the number of children experiencing poverty by more than 40 percent as compared to child poverty levels in the absence of the expansion.”
Indeed, according to the report most families receiving advance payments are spending the money on basic needs. The advanced payments have allowed them not to have to choose between say, medication and food or food and heat. The money is allowing working families, especially families of color and families in rural areas to pay their regular monthly bills without having to be as concerned about which bills they can afford to pay. It is helping many two-earner families make ends meet as well as helping grandparents and other caregivers to support children who are in their care. Unlike food or housing benefits the payments are in cash that can be used for any type of monthly bills or even the occasional emergency (such as car repairs that could allow working parents to get to and from their jobs). The extra cash could be just enough to help bridge the extra cost of food and utilities due to rising inflation. But unless Congress acts immediately that safety net just disappeared.
Provisions in the Build Back Better (BBB) Act would extend the expansion of the Child Tax Credit and the advance payments through the end of 2022. The House version of the Act passed on November 19, 2021. The Senate released an update to their version of the bill on December 11, 2021. At that time, Senate Majority Leader Chuck Schumer (D – NY) had expressed the intent to pass the BBB Act before Christmas. Well, you know what they say about good intentions. Senator Joe Manchin (D – WV) and Senator Kyrsten Sinema (D – AZ) have expressed concerns about the cost of the bill and Senator Manchin has floated the idea of further means testing (parents or guardians must have some earned income) in order to receive the credit. For all intents and purposes Congress is admitting now that it is unlikely that the bill will pass before the end of the year thus plunging millions of low-income children back into poverty just in time for the holidays and winter heating bills. It is increasingly likely that the Senate will table the matter until early 2022 possibly picking up negotiations again in February or March.
Assuming some version of the Act gets passed in early 2022 it is possible (or likely) that Child Tax Credit payments would be made retroactive. Unfortunately that does not help children or their families right now. It also pushes yet another piece of tax related legislation right into the middle of tax season while at the same time (most likely) tasking the IRS with calculating and issuing immediate retroactive payments. This payment processing (should it occur) would be in addition to processing e-filed returns, processing the backlog of 6.7 million unprocessed returns (as of December 14, 2021), processing a virtually immeasurable notice and correspondence backlog, and providing guidance for the other new (and occasionally retroactive) tax law that is included in the Act. In other words, kicking this particular can down the road will result in a cascading series of failures for the IRS, taxpayers, tax professionals, and the millions of children and families who are benefitting from the additional financial support the expanded credit provides.
But hey, don’t let it ruin your holidays, Senators.
What’s Up With The Advanced Child Tax Credit Payment?
Keeping Child Tax Credit Fully Refundable Is Critical To Low-Income Families
Two Of The Most Family Friendly Provisions Of The American Rescue Plan