Wondering about the child tax credit and what’s coming next? The last deposit date for the child tax credit payment was December 15, 2021. Many had hoped the American Rescue Plan (ARP) would be continued into 2022. But political leaders are struggling to find a way to make Congress happy. As a result, many families are waiting and wondering what will come next.
History of the child tax credit
A child tax credit has existed since 1997. However, the credit was significantly revised to offer parents financial relief during the pandemic. It had previously been provided to eligible families as a single, partially refundable amount at tax time. Under the new plan, relief checks were sent out on a monthly basis and the credit was fully refundable. The changes also substantially expanded the credit from $2,000 to $3,000 annually per child. In addition, the new credit provided a $600 bonus for children under the age of 6.
Impact of the child tax credit
The impact of the revision was undeniable. According to a report issued by the Center on Poverty and Social Policy at Columbia University, payments of up to $300 per child being deposited in bank accounts (along with other COVID-19-related government support) contributed to a 4.6 percentage point (26 percent reduction) in child poverty in September of 2021 alone. Previous reports documented similar results.
The center shines a light on the question of what happens next, now that funding has ceased. Both Democrats and Republicans had backed the credit through the Tax Cuts and Jobs Act under the Trump administration. While there is bipartisan support for some type of continuation, the devil is in the details. Consensus has been hard to find, which is why we find ourselves in this conundrum.
Mixed emotions about the child tax credit due to logistics
Much of the disagreement about how to move forward has revolved around whether the tax credit should be tied to a work requirement. Also there are other issues surrounding what agency should be responsible for its administration. Not to mention how the money should be distributed and to whom. Senator Mitt Romney proposed that monthly cash should go to all families regardless of income. Others object to that idea. Specifically that the credit shouldn’t limit the benefit to working families and those paying into the tax system. Still, others insist that there must be oversight from social service agencies. This would ensure that children are getting the benefit of the payments. Senator Joe Manchin called attention to the many grandparents who are responsible for raising their grandchildren. Manchin insists that the money should follow the child rather than their parent.
How were the checks spent?
The Census Bureau conducted a survey of American households to see how they spent their child tax credit checks. The majority used the cash for household expenses. These expenses included rent or mortgage payments, groceries, and utilities. Four in ten families used the first few payments to pay down their debt. Many used the funds to pay for child-care and school supplies. While others used it to provide extras that they might otherwise not have been able to afford. These uses included music lessons, entertainment, or occasional take-out food during the pandemic.
While Congress works its way through the challenges of finding replacement funds, many families dread the coming months. There are also some families who received too much, and who now may owe money when tax filing season arises.
No loss of benefits for those who didn’t receive the credits in advance
However, the monthly payments were “advance” credit payments. That means any credit amount you are entitled to will be credited to your 2021 tax return. So you did not lose out on anything, you just did not get it in advance.
The IRS will be sending Letter 6419 which will show the total amount you received in advance payments. HOLD ONTO THAT LETTER. You’ll need it to reconcile your advance payments received with the amount you are entitled to. Don’t discard that letter, please keep it with your other tax records and documents.
If your family received advance child tax credit funds, you are not alone in wondering what will come next. You also may need help with your upcoming tax return. If so, don’t hesitate to contact us for assistance.
Should You Opt Out of The Advance Child Tax Credit?
