Thirty-nine million American households began to receive monthly payments this week from an expansion of the Child Tax Credit (CTC).
Everyone loves the party game “Two Truths and a Lie.” Can you identify which of the three following statements about the Child Tax Credit is a lie?
A. Low-income and middle-class families are getting the checks even if they don’t need them.
B. The expanded credit may create a disincentive to work.
C. These monthly checks are here to stay.
Let’s take these statements one at a time:
The Child Tax Credit (CTC) is a tax credit available to parents with qualifying dependents under the age of 17. It is designed to help low-income working families with children. However, in March 2021, as part of his COVID relief plan, President Biden and congressional Democrats increased the size of the credit from $2,000 to up to $3,600, depending on the age of the child. They also expanded the age eligibility for minors from 16 to 17 years old. In addition, they made it fully refundable. Not only are low-income families qualified to receive the funds, but some middle-class families are as well.
Before the expansion of the CTC, parents earning $2,500 or less couldn’t claim the credit. Families that earned more, but not enough to pay income taxes, could receive no more than $1,400 as a refundable credit. The intention behind linking the credit to parents’ incomes was to encourage people to work. By making the CTC fully refundable, parents with little or no income will get the full credit. Also, the additional CTC payments may join generous unemployment benefits as powerful incentives to not work.
We hope. The CTC expansion is temporary and expires at the end of the 2021 tax year. However, President Biden has proposed that it be extended for another four years until 2024 in his infrastructure plan, and some congressional advocates argue that the expansions be made permanent.
Implications: The Child Tax Credit is a facet of our social safety net that’s meant to provide temporary support to those with little or no means until they can become financially secure. The Biden administration is likely using the expanded, advanced CTC payments to build public support for enhanced entitlements as an election issue. Meanwhile, it may become a disincentive to work that is contributing to rising inflation.
Read more about the CTC expansion: Child Tax Credit Payments Hit 39 Million Households Today: What You Need To Know