FAMILIES that receive a child tax credit can expect reduced benefits after the expanded credit expired in December, but can still claim the original support on taxes in the future.
Under the American Rescue Plan, the maximum federal child tax credit was boosted to $3,600 for 2021.
However, for 2022, the maximum federal child tax credit is back to its pre-pandemic level of $2,000.
Although the boosted child tax credit received praise from families and economists alike, and Congress flirted with the idea of extending the expanded program, lawmakers were unable to agree on an extension and the enhanced benefits and advance payments ended.
Read our child tax credit live blog for the very latest news and updates…
CTC payments ‘strongly reduced food insufficiency’
The National Bureau of Economic Research released a paper on the impacts of child tax credit payments and revealed startling findings.
First, the child tax credit payments “strongly reduced food insufficiency: the initial payments led to a 7.5 percentage point (25 percent) decline in food insufficiency among low-income households with children,” according to the study.
Idaho’s child tax credit is non-refundable and set at a fixed rate of $205 per qualifying child.
The state defines a “qualifying child” using the same definition as the IRS – dependents younger than 17 – so residents will get an additional $205 for every child they already receive benefits for.
Colorado CTC, continued
Married couples filing jointly will be eligible for the following state child tax credits:
- 30 percent of their federal CTC as a state tax credit if they earned less than $35,000.
- 15 percent of their federal benefit if their household income is between $35,000 and $60,000.
- 5 percent of their federal credit if they earned $60,000 to $85,000.
Couples earning more than $85,000 are not eligible for a state child tax credit in Colorado.
Starting with 2022 taxes – the taxes you’ll file in early 2023 – Colorado will distribute credits to families with children younger than 6 based on their federal CTC benefit amount, income, and marital status.
Single filers can claim:
- 30 percent of their federal CTC as a state tax credit if they earned less than $25,000.
- 15 percent of their federal benefit if their household income is between $25,000 and $50,000.
- 5 percent of their federal credit if they earned $50,000 to $75,000.
Individuals earning more than $75,000 are not eligible for a state child tax credit in Colorado.
California CTC, continued
Lawmakers in The Golden State have also proposed a one-time child tax credit of $2,000 to families with children 17 or younger earning less than $30,000.
Families already eligible for the Young Child Tax Credit could receive $3,000 for children younger than 6 years old.
The bill was introduced by Assemblymember Miguel Santiago, who called it a “game changer” in the wake of the federal government’s decision not to continue boosting CTC payments, according to The Center Square.
“We’ve now had 1.7 million children fall back into poverty for those families who are $30,000 and below, and the inability of the federal government to step up has had devastating impacts on those families earning $30,000 and below,” Santiago said.
CalEITC beneficiaries with a child age 6 or younger can qualify for the Young Child Tax Credit (YCTC).
Families with a household income below $25,000 are eligible for a $1,000 credit.
Households earning $25,000 to $30,000 can receive a reduced credit.
State CTC programs, part three
A handful of states have enacted laws related to the CTC, but have not established their own credit.
Delaware, for instance, began recognizing June 21 as Child Tax Credit Awareness Day in 2021.
Louisiana passed a bill exempting the refundable portion of the credit from being seized or garnished.
And North Carolina introduced a tax deduction of up to $3,000 for each child that qualifies for the federal CTC.
State CTC programs, continued
According to the National Conference of State Legislatures, in addition to the states with existing CTCs, 10 more have proposed state child tax credits since 2019.
New York and California lawmakers have already proposed legislation that would expand their CTC programs.
State CTC programs
At least nine states have created their own child tax credit to supplement the federal credit.
Six of them – California, Colorado, Maryland, Massachusetts, New Mexico, and New York – have refundable credits.
Maine, Idaho, and Oklahoma have introduced non-refundable child tax credits.
Refundable vs non-refundable credits, continued
Typically the CTC is only partially refundable, but in 2021 the entire credit was refundable.
For 2022, the federal credit is 70 percent refundable.
That means even if your tax bill was $0 and you received the maximum $2,000 benefit, you’d only be able to collect $1,400 on your refund.
Refundable vs non-refundable tax credits
Tax credits fall into two major categories based on how they can impact your tax liability.
A refundable tax credit, according to the IRS, allows taxpayers to reduce their tax liability to $0 and receive a refund if the credit amount exceeds the burden.
For example, if you owe $1,500 in taxes and earned a $2,000 tax credit, your tax bill will be wiped out and you’ll get $500.
Non-refundable tax credits can reduce your tax liability to $0, but you’ll forfeit any remaining credit after your burden is $0.
Can two parents claim the credit for the same child?
Generally speaking, only one parent can claim a dependent on their taxes.
Technically, married couples filing a joint return are both “claiming” the credit, as they share the benefits.
If a married couple files separately, one parent can claim half of the child tax credits and split the benefit.
Two parents claiming the CTC, continued
Divorced, separated, or unwed couples must determine which parent will claim the child as a dependent each year.
Because advance payments in 2021 were distributed to anyone who claimed a dependent in 2020, parents who alternate claiming their child as a dependent each year may have both received the tax credit.
However, both parents may not be able to benefit from the credit.
If you claimed your child as a dependent in 2020 and received advance payments in 2021, you may be required to return those advance payments if your co-parent plans to claim the full credit on their tax return.
States called on to provide expanded CTCs
With no federal expansion expected, the Center on Budget and Policy Priorities (CBPP) recently called on state lawmakers to introduce CTC payments.
“State policymakers should shift toward equitable, targeted approaches to helping families meet basic needs through improving or expanding tax credits like CTCs,” senior policy analyst Samantha Waxman wrote.
Not only can CTC payments help reduce poverty and support children and families, but the CBPP also noted that the tax credits improve local and state economies as well.
Will the expanded federal CTC return in 2022?
Despite support for its extension from congressional Democrats, the expanded CTC expired in January with no federal intervention.
While some states have introduced their own CTCs, many economists have called for the expanded federal program to be extended again or made permanent.
President Biden included a boosted tax credit for 2022 in his $1.8trillion Build Back Better proposal, but the bill has received no support from Republicans and Democratic Senator Joe Manchin’s opposition means it’s unlikely to ever get majority support.
Who qualifies for the federal CTC?
For 2022, families with children 17 or younger may claim up to $2,000 per child.
Married couples must earn less than $400,000 to qualify for the full credit.
For singles and those who file as head of household, the income cap is $200,000.
Child tax credit amounts for 2022
In 2021, the American Rescue Plan boosted the maximum federal child tax credit to $3,600.
From July to December families received advance CTC payments of up to $300 per month, but those advances expired at the end of 2021 along with the boosted credit.
For 2022, the maximum federal child tax credit is back to its pre-pandemic level of $2,000.
Connecticut CTC, continued
Nearly $600million in tax relief is included in Governor Ned Lamont’s budget.
The property tax credit will rise from $200 to $300.
According to News12, a tax rebate of $2,500 is available for a stillborn child.
In addition, a pandemic pay structure for private-sector workers has been proposed.
Thousands of Connecticut families might be eligible for a new child tax credit worth up to $250 per child.
On May 3, the state’s House of Representatives adopted a $24.2billion budget.
A $250 per child tax benefit, maximum at three children, is one of the provisions included in the package.
According to The Connecticut Mirror, single filers with annual earnings of less than $100,000 and couples with annual incomes of less than $200,000 are likely to be eligible for the payout.
The planned system is estimated to cost $125million and will benefit at least 600,000 children.
Families who are qualified for the payout based on their wages in 2021 will most likely get it this summer or autumn.
The cost of childcare
According to the 2021 Cost of Care Survey, most families are struggling to afford child care.
85 percent of families surveyed said they spend at least 10percent of their household income on childcare costs.
More than half (57 percent) of families surveyed spent more than $10,000 on child care in 2020.
59 percent of families are on track to spend more than $10,000 on child care in 2021.
Devastation after the CTC halt
With four children, Rozendaal was receiving an extra $1,050 through the CTC.
“The extra money has enabled us just keep up with gas prices, food prices,” shared Brad Rozendaal with WeAreIowa.
“It’s a little concerning, honestly, I’m not gonna lie. We’ve been trying to budget a little more. And kind of figure out which things we can kind of either do away with or maybe downgrade like internet or something like that.”
CTC fortified family finances, continued
In the second poll of slightly over 100 households, 49 percent reported they were able to pay important utility payments on time because of the cash.
According to the research, the enhanced Child Tax Credit payments helped families meet basic requirements like buying food, paying bills on time, and accumulating savings.
Following the expiration of the enhanced credit, 32 percent of 801 households stated they would have a tougher time paying essential necessities like energy bills.
CTC fortified family finances
Last year, the enhanced Child Tax Credit helped millions of families achieve financial stability. Some households are having difficulty meeting basic requirements just two months after the program’s expiry.
Based on a survey of 801 households conducted in December, approximately 92 percent of families surveyed by SaverLife, a nonprofit platform that helps people build savings, said the tax-credit payments helped improve their financial stability
And 59 percent of recipients said it made a significant difference in their finances.
Poverty and CTC, part three
Despite the tremendous increase in unemployment caused by the coronavirus pandemic, government relief programs such as stimulus checks and unemployment benefits in fact lowered poverty rates in the United States.
Most dramatic for lowering child poverty was the expanded Child Tax Credit, which was made both more generous and extended to nonworking and poor parents who had traditionally been excluded from receiving benefits.
Poverty and CTC, continued
The study found that the overall monthly child poverty rate rose sharply between December 2021 and January 2022.”
Last March, Democrats in Congress passed a bill extending the Child Tax Credit from July through the end of 2021.
Almost all households in the United States received payments of $250 per month for children aged 6 to 17 and $300 per month for kids under the age of 6, however, the benefits were tapered off for wealthier families.
The annual cost of the initiative was estimated to be over $120billion.
According to official figures, more than a 61million children in around 36 million households got the payment in December.