Monthly child tax credit payments will expire at the end of the year if Congress doesn't act

For 35 million families with 65 million kids that have relied on monthly child tax credit payments, the new year might not be a happy one.

Without the passage of President Joe Biden’s $1.75 trillion economic plan, Build Back Better, the monthly payments will expire, and the child tax credit will revert to its much smaller pre-pandemic form. The enhanced payment due families on Dec. 15 may be the last.

“I’m definitely concerned that families will be surprised, and unlike in July when [the child tax credit] would have been a positive surprise, this time it will be a negative surprise,” said Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center. 

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Enhanced child tax credit

The American Rescue Plan, enacted in March, expanded the existing child tax credit, increasing the amount and scope of the benefit.

The credit was increased to $3,000 from $2,000 with a $600 bonus for kids under the age of 6 for the 2021 tax year. It also established monthly payments, which began in July and go through December in deposits of $300 for children under the age of 6 and $250 for those aged 6 to 17. The second half will come when families file 2021 tax returns next year.

The enhanced credit also reached more children than ever because it was made fully refundable, meaning that families without earned income could still claim the benefit for eligible kids.

This change meant that some 27 million children were able to get the credit for the first time, including roughly half of Black and Latino children and half of those who live in rural areas, according to the Center on Budget and Policy Priorities.

In just a few months of families receiving payments, data showed how the enhanced child tax credit helped. Financial instability fell, more children had enough to eat and some parents were even able to work more.

Continuing the enhanced benefit could have a significant impact on child poverty. Keeping the credit beyond 2021 would reduce child poverty to about 8.4% from 14.2%, a fall of roughly 40%, according to a study from the Urban Institute.

Without an expansion

Not expanding the enhanced child tax credit would mean that mean thousands of dollars suddenly disappear from family budgets overnight.

For example, a single mother who works full time at the federal minimum wage and has a toddler and a second grader is getting $6,600 this year through the child tax credit, said Kris Cox, deputy director of federal tax policy at the Center on Budget and Policy Priorities.

If the enhanced credit lapses at the end of the year, the same family would get only $1,800 through the child tax credit in 2022. That’s a $4,800 difference.

“That’s really significant money that could go to support that family,” said Cox.

In addition, data showed that parents largely spent the monthly payments on necessities such as groceries, school supplies and boosting savings.

“Monthly payments provide support to families throughout the year,” said Cox. “Rent, electricity, food, childcare, transportation — all of these costs occur on a monthly basis.”

What families can do now

Families don’t have much time to prepare for the lapse in monthly payments.

What they can do now is review and revise their January budget to assume that the payment isn’t coming, said Maag.

“Families do that all the time — they juggle bills, they choose which ones to pay, they forgo opportunities in order to make sure they have enough money to cover their needs in the next month,” Maag said.

They can also prepare to file their 2021 taxes to get the second half of the credit as soon as possible next year. Part of this process is making sure they got all the payments they were owed this year, said Trenda Hackett, CPA and technical tax editor of the tax and accounting business at Thomson Reuters.

“I would recommend they log into the CTC portal to check their payment status and see what the IRS says as to the amount of payments they have received,” said Hackett. Families can also track lost or missing payments, she said.

Families should also look out for correspondence from the tax agency called “Letter 6419,” which will show the agency’s record of child tax credit payments. They will need to submit this when they file their 2021 taxes.

To be sure, Congress could still pass Build Back Better and keep the enhanced child tax credit for one more year. Even if it isn’t passed this year, it could still be approved and signed into law in early January, which would continue the credit but may still cause a gap in monthly payments.

“Congress needs to be aware that when they hold low-income families hostage by not passing important legislation, it is potentially harmful to those families,” said Maag.

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