Child Tax Credit: What parents need to know in 2021​-22

In an update to her coverage on Family Policy, Peggy O’Mara shares everything you need to know about the 2021 Child Tax Credit.

The pandemic lockdown has shone a spotlight on the usually invisible work of informal caregivers in the home, work done mostly by women. This caregiving work of women is done for free and out of love, but nonetheless, it has economic value. In fact, according to a recent analysis, if US women earned the minimum wage for the work they do in the home and caring for loved ones, they would have made $1.5 trillion last year.

Since 1972, women’s rights and welfare rights activists have called for a guaranteed income for unpaid caregivers in the home. In 1995, the United Nations was influenced by these advocates to direct nations to value and measure both paid and unpaid work in national accounts and other statistics, like the Gross Domestic Product. And, in 2020, the European Union called for a “Green New Deal,” which would compensate activities like caring for people, activities which are often undervalued or invisible in society and overwhelmingly performed by women—especially mothers.

When school started remotely in September 2020, 1.1 million workers dropped out of the US labor force—80% were women. Nearly half of these were women of color. And, many families, especially those headed by single mothers, women of color and immigrant women, fell into poverty during the lockdown and don’t have enough to eat. One in six US children worry about where their next meal is coming from and 13 million now live in food insecure households.

For millions of parents, low wages, unfair scheduling practices and minimal benefits make if difficult, if not impossible, to both work and take care of loved ones. In fact, workers paid the minimum wage can work 40 hours a week and still need public assistance. For example, 70% of adult wage earners who are enrolled in Medicaid or receive food assistance (SNAP) are working full-time

The Child Tax Credit (CTC) for 2021

To address the growing poverty of children in the US, President Biden’s American Rescue Plan called for an expanded Child Tax Credit (CTC) for 2021. The child tax credit was first implemented in 1997 to provide tax relief to middle and upper-middle income families, but President Biden’s CTC will especially help lower income families because it is fully refundable. The term “fully refundable” means that is available to all families, whether or not they claim any income or owe any taxes, and because of this, it is expected to reduce child poverty in the US by 45%. 

On April 28th, President Biden announced that he would extend the CTC for four more years. Forty-one Senate Democrats want it to become permanent and Representative De Lauro (D-CT3) has re-introduced The American Family Act (AFA) in the House to make it so. (The 2019 AFA was the model for the Child Tax Credit in the American Rescue Plan.)

Efforts are also underway, by Representative Gwen Moore (D-WI4), to increase the amount of the Earned Income Tax Credit (EITC) to $4000 for single filers and $8000 for married filers and to allow it to be claimed not only by parents of children under 12, but also by students in higher education and those caring for dependents over 18.

People worry that eradicating poverty in the US would be too expensive, but it’s just the opposite. Mark R. Rank, Professor of Social Welfare at Washington University in St. Louis—one of the nations’ top experts on income inequality—says that alleviating poverty is in our collective self-interest. According to Rank, every dollar spent on reducing childhood poverty would save at least $7 with respect to the economic costs of poverty, which are $1.03 trillion a year. According to Talk Poverty, poverty in the US could be completely eliminated for $1.74 trillion. 

What You Need to Know About the 2021 Child Tax Credit

Before the American Rescue Plan, the Child Tax Credit was $2000 a year for each child up to age 16. For 2021, it will be $3600 a year for each child under six and $3000 a year for each child six to 17. Payments are intended to be monthly and are expected to begin in July of this year. Any amount that is not received by the end of the year can be claimed on 2021 taxes.

Here’s what you need to know.

  • The expanded Child Tax Credit in the American Rescue Plan is available to single filers making less than $75,000, heads of households making less than $120,500 and married couples making less than $150,000 a year. For those making more, the Child Tax Credit will remain $2000 for each child up to age 16.
  • If the IRS has already processed your 2020 tax return, your monthly payments will be calculated based on that return. If not, the IRS will use your 2019 tax return. You will be able to provide the IRS with updated information through a new portal that is opening in June. If you need help filing your taxes, you can get free tax help from the IRS.
  • If you did not file income taxes in 2019 or 2020, the IRS will use your information from the Economic Impact Payment (EIP) non-filer portal. Otherwise, you can use the non-filer portal that opened on June 14th to apply for the CTC. This non-filer portal can also be used to claim the three previous stimulus checks. 
  • The IRS provides information on how to use this non-filer portal, but it was immediately criticized because it works only on desktops and laptops, and is not mobile friendly. According to the IRS, it was built to provide an easy way for those whose incomes are too low to file to provide the information the IRS needs to send them checks. However, 40% of households with incomes below $30,000 have no traditional computer. The non-filer portal also requires an email and is only in English. 
  • If your income is less than $57,000, you are disabled or not a native English speaker, you can speak to someone at the IRS’s Volunteer Income Tax Assistance (VITA) by calling 800-906-9887.
  • Advocates are calling for the CTC to go to the primary caregiver, but for now it will go to the tax filer. If you are the primary caregiver of the children and want the payments to go directly to you, file your own tax return as head of household and claim your dependents.
  • If you are undocumented and have an ITIN number, you can receive the CTC if your child lives with you at least half of the year and has a social security number. 
  • The CTC cannot be used to reduce other federal benefits.

To help raise awareness of the CTC, Moms Rising launched a public information campaign earlier this year. President Biden designated June 21 as Child Tax Credit Awareness Day and the White House has detailed information on the CTC and how it will help. The Economic Security Project calls for a new government-run Simplified Filing Portal by January 1, 2022 and recommends that the IRS work with state and local governments to ensure that all eligible families can claim the CTC.

The American Prospect, a political and public policy magazine, refers to the expanded Child Tax Credit as a universal child allowance, something that is common in other high-income economies. In Canada, for example, families receive an allowance of approximately $4000 per child a year and $4800 a year for younger children.

The Canadian child allowance has already been associated with a 20% reduction in poverty between 2015 and 2017. The mission of the newly formed ABC Coalition, Automatic Benefit for Children, chaired by the Children’s Defense Fund and the Center for the Study of Social Policy, is passage and full implementation of a child allowance in the US— a guaranteed minimum income for all children. 

For public spending on children, the US ranks second to last among the 38 country members of the Organization of Economic Cooperation and Development (OECD), a group of high economy nations that stimulate economic progress and world trade. While countries like Denmark, France and Hungary spend 3.5% of their Gross Domestic Product (GDP) on family benefits, the US spends less than 1.5%. Only Turkey and Mexico spend less. 

The passage of a refundable Child Tax Credit in the US is a first step in aligning public spending on children with child spending in the rest of the developed world. Research shows that children in families receiving tax credits do better in school, are likelier to attend college, and can be expected to earn more as adults.

For Parents Filing Taxes

In previous years, the maximum credit you could receive was up to 35% of $3000 of childcare expenses for one child or $6000 for two or more. The American Rescue Plan Act of 2021 expanded this credit. This year, you can receive a credit for up to 50% of $8000 of expenses for one child and up to $16,000 for multiple children. The percent of expenses allowed to be claimed as a credit will be limited over certain income levels.

Check your files for correspondence included with the checks you received. Letter 6419, 2021 advance Child Tax Credit, contains important information that can help ensure your return information is accurate.

Eligible taxpayers who received advance Child Tax Credit payments should file a 2021 tax return to receive the second half of the credit, while eligible taxpayers who did not receive the advance payments can claim the full credit by filing their 2021 tax return. (People who received the advance CTC payments can also check the amount of the payments they received by using the CTC Update Portal.

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