Personal Finance

Biden Is Focused On Adding This New Feature To The Child Tax Credit – And Its A Gamechanger

With a week to go before the new Child Tax Credit being rolls out, President Joe Biden continues to make his vision for America known on a trip to McHenry County College in Illinois on Wednesday, July 7, 2021. 

“To truly win the 21st century — and once again lead the world — to truly build an economy from the bottom up and the middle out, to truly deal everybody in this time, we need to invest in our people,” said the President during his remarks.

While the President is focused on promoting the idea of “generational human infrastructure” with a number of programs aimed to help Americans, there are a number of moving pieces to achieve his goal. One key investment he hopes to make includes the rollout of the new Child Tax Credit that is scheduled to begin paying on July 15, 2021.  Biden wants to make clear that this credit is meant to be significant for Americans.

At the event, he emphasized, “It’s not a credit against your taxes, you’ll get cash. Cash. You get the first half of $3,600 paid out between July and December, and you get the rest between January and Tax Day.”

But that’s not all he wants to do. Biden is also focused on going a step further: extending these credits to 2025 for Americans who qualify.

How The Credit Works

The Americans Rescue Act expanded the Child Tax Credit significantly. Taxpayers with children ages 5 and under, will receive an credit of $3,600 per child. For children ages 6 to 17, that credit will be $3,000. The credit will be made eligible for families whose modified adjusted gross incomes (MAGI) are $75,000 or less for single filers, $112,500 for head of household filers and $150,000 or less for joint filers. These income limits will be subject to phase outs.

But what is unique about this new credit is that the first half of the credit will start paying monthly this July 15th directly into the bank accounts of American families that qualify. This means monthly payments of $250 or $300 depending on a child’s age. Proponents of the credit are optimistic that it will have a positive impact on both middle- and lower-income families. In fact, researchers at Columbia University’s Center on Poverty and Social Policy are estimating that this new credit could cut childhood poverty by 45%.

The Biden Administration backs this philosophy. In its June 21, 2021 statement on the Child Tax Credit, Biden emphasized that “This tax cut will give our nation’s hardworking families with children a little more breathing room when it comes to putting food on the table, paying the bills, and making ends meet.”

Extending The Credit

While these numbers are optimistic, the challenge has been that this new tax credit is for 2021 only. As a result, it is not clear if there would be sustained results if the credit disappeared after the 2021 tax filing season.

As a result, the President’s comments have meaning. He believes this credit should be extended through 2025 for Americans who qualify. He intends to do this through the American Families Plan that the Democrats are trying to get through Congress.

The impact of an extended credit would be significant. For American families who receive the $3,000 or $3,600 credit for 5 years, it could change their economic outlook. Lower income Americans will be able to provide a more stable environment for their children consistently. For middle income Americans, this could allow them to save towards college or help pay for childcare.

The Challenges Ahead

But in extending the credit, the Biden Administration has a long road ahead. The extension would be part of a $1.9 trillion plan they are trying to get through Congress. As a result, it might not be an easy path to success. 

Further, there are administration challenges to work through. This credit will be administered by the IRS. However, the IRS is currently bogged down with long wait times and unopened mail. The IRS has been successful in rolling out the tool to allow Americans to either sign up for or opt out of the credit. 

Up To Taxpayers

Ultimately if the tax credit is a success in 2021, it will allow it to be an easier argument to increase it through 2025. For Biden, it appears this will be a significant part of his legacy.

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