Child Tax Credit: UAB professor explains how changes could affect your family

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BIRMINGHAM, Ala. — The ongoing COVID-19 pandemic has affected countless Americans from all walks of life, leaving many jobless while struggling to feed their families and secure livelihood.

Recently signed by President Joseph Biden, the American Rescue Plan includes some important changes to the Child Tax Credit. These changes will help rebuild the American economy and aid millions, says the University of Alabama at Birmingham’s Peter Jones, Ph.D., an assistant professor in the College of Arts and Sciences Department of Political Science and Public Administration.

The child tax credit applies to those with children or other dependents and is a way to reduce a tax liability — the amount owed to the federal government. For this year’s federal taxes, Jones says the American Rescue Plan has made two important changes to the CTC.

“First, the credit increases from $2,000 per child to $3,000 for children ages 6-17 and $3,600 for children younger than 6,” Jones said. “Second, the CTC is fully refundable, so people who did not earn enough income to have a tax liability high enough to reduce through credits still receive the benefit.”

Importantly, the changes will allow those who lost their jobs and were unable to earn income as a result of the pandemic to receive the extra money to help their families.

Another notable change was made through the ARP, Jones says. Normally, people reap the benefit of the CTC when they file their federal taxes in spring of the next year, and receive a larger federal tax refund. Now, starting July 15, people will receive monthly payments instead of waiting until 2022 for the increased CTC as a lump sum.

This policy change can affect a person’s tax refund next year, but is unlikely to cause a big reduction, Jones says. Because the total amount of the CTC has increased, taxpayers will still receive a $1,500-$1,800 credit when they file their taxes in spring 2022 (as compared to $2,000 in previous years).

This change will be in effect only for 2021. If no additional legislation is passed, the CTC will revert to $2,000, with no prepayments.

An expanded CTC and prepayment policy approach will have a wide-ranging impact on several fronts. Jones says families will be able to better afford child care, and the extra money will address families’ food insecurity, which increased during the pandemic and has not reverted to pre-pandemic levels.

By making the tax credit fully refundable, 27 million more children — 458,000 of whom are in Alabama — will be eligible now.

“This is particularly important for rural areas of Alabama that have persistently high levels of child poverty,” Jones said.

Jones says these changes to the CTC will help stimulate the economy by giving families additional dollars to pay for childcare, which can help rebuild a day care sector that was decimated by the pandemic. By addressing the childcare issue, many people will be better able to return to work. Estimates suggest more than 600,000 women left the workforce because of day care closures.

More broadly, the CTC payments offer another avenue to stimulate the economy, Jones says. The recovery from the COVID-19 recession has been uneven. The ARP was designed to also benefit people and sectors that have not recovered.

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