Let’s talk about the Child Tax Credit and what it means for everyday Americans and Green Valley tax Services. The entire reason to mention this part of the tax system is that the last round of Child Tax Credit Payments was issued on December 15, 2021, thus ending what was a popular program. Of course, giving people money who may not understand the implications of such a windfall is bound to have a positive effect.
What is the Child Tax Credit?
First, a quick history lesson. The Child Tax Credit was created in 1997 as a nonrefundable credit that was applied to the deduction side of the tax obligation calculation for eligible families. Typically you had to make under a particular ceiling to benefit from this credit. Over the years, the credit has been expanded by either increasing the amount a family could deduct or lowering the qualification to get the credit.
Significant changes happened after Covid as the mountain of evidence that American families were struggling financially began to overfill the inboxes of most state and local representatives. As a result, in 2021, the credit was expanded again under the American Rescue Plan. This increased the maximum annual credit from $2,000 per child under 17 to $3,000 per child under 18 and $3,600 for those under 6. It also made the 2021 credit fully refundable.
The other big change was, instead of waiting for the end of the year to credit family tax obligations, the IRS issued early payments on a monthly basis based on the previous year’s income and eligible amount of household children. This was designed to help low to middle-income taxpayers in a severe time of need.
So What is the Problem?
Okay, now that we’ve set the stage, let’s bring in the actors. The idea of helping American families with prepaid credits from the Child Tax Credit has worked. With more than 11 million US children living in poverty, the credit has positively affected roughly 45% of at-risk children. Some would argue that the areas that have been impacted the most are those in rural and low-income regions, which tend to lean Republican more than Democrat. That is why it has been a shock that the single Democrat hold out for ensuring this credit’s future is turning it down.
There is a new bill being proposed by President Biden called the Build Back Better Act. This would lead to another expansion to the Child Tax Credit and is included as part of this bill’s package to increase the payments. These increases would begin to tail off sharply for couples making over $150,000 and end for those making more than $200,000.
Senator Joe Manchin (D-W.VA.) says he won’t vote for the bill because “there’s no work requirement, no means testing.” In order to pass any bill under the current administration, they need every single Democrat to fall into line, so without Manchin, this could fail.
What Does This Mean for You?
The good news is that the current levels of the Child Tax Credit will most likely continue into the future. The debate is about expanding the amounts given, not reducing what is already in place.
If you would like to learn more about current tax changes and how they will affect you and your family, try reaching out to the professionals at Green Valley Tax Services. Their combined years of experience navigating the complicated world of tax law make them one of the best choices for getting the most out of your tax obligation experience. Contact their expert support staff today to schedule a consultation and learn how Green Valley Tax Services can help you!