A group of U.S. Representatives has introduced the American Family Act, legislation that would make the previously expanded and improved monthly child tax credit permanent.
During Covid-19, the American Rescue Plan Act provided relief for American families through a series of payments and credits. One of those was a “super-charged” version of the child tax credit. Beginning in July of 2021, the IRS began distributing nearly $93 billion in advance child tax credit payments to families—you’ll recall those as paper checks or direct deposits that appeared each month.
The payments were equal to 50% of the child tax credit estimated to be available to families based on information reported on their 2019 or 2020 federal income tax returns. Eligible families who did not receive the advance payments—or didn’t receive enough—could claim the full credit on their 2021 tax return during the 2022 tax filing season.
Mailing the payments in monthly installments wasn’t the only change. The credit was also bigger—for the 2021 tax year, the child tax credit increased from $2,000 per qualifying child to $3,600 for children ages five and under and $3,000 for children ages six through 17.
The credit was also fully refundable to qualifying taxpayers, subject to income limits. That meant you could receive the advance child tax credit payment even if you did not owe any tax in 2021.
The expanded credit reached more than 61 million children. And studies suggest that it made a tremendous impact.
A 2022 paper from the American Medical Association noted that children in the U.S. are more likely to live in poverty than any other age group. Before Covid, over ten million children in the U.S. lived in poverty, one of the highest child poverty rates among high-income countries. About half of all children living in poverty are living in what’s called extreme poverty, defined as living in a household with an annual income of $13,086 for a family of four.
According to the AMA, the expanded child tax credit resulted in increased child wellness, the ability to pay household expenses, and decreased childhood food insufficiency. But, they noted that these gains “diminished immediately” at the end of 2021 when the credit reverted to pre-pandemic levels. January 2022 saw a 41% increase in childhood poverty.
So what exactly changed? In 2022, the law reverted to the “normal” child tax credit—the credit that’s on the books now. Under current law, the child tax credit is worth up to $2,000 per qualifying child under the age of 17. That’s a smaller credit and a change from the age limit in 2021, which included children who were 17 years old. The credit is claimed in one lump sum on your tax return—no monthly advances—and the credit is partially, not fully, refundable. As before, the credit is subject to income limits.
U.S. Representatives Rosa DeLauro (D-CT), Suzan DelBene (D-WA), and Ritchie Torres (D-NY) would like to see the return of the expanded credit and would make it permanent. “When we expanded and improved the Child Tax Credit in 2021 under the American Rescue Plan, it provided unprecedented economic security for American families. It was the largest tax cut for middle-class and working families in generations,” said DeLauro.
The move was met with enthusiasm by some, including the Institute on Taxation and Economic Policy, a non-profit, non-partisan tax policy organization. “We’re thrilled to see lawmakers prioritizing tax credits for low- and middle-income families with the introduction of the American Family Act today,” said Amy Hanauer, Executive Director of ITEP. “By permanently expanding the Child Tax Credit (CTC) to 2021 levels, this legislation would help millions of children and families, especially the lowest-income families who currently make too little to receive the CTC.”
ITEP previously reported that without tax credits and other federal programs, the share of children living in poverty would have fallen only slightly from 2020 to 2021, from 16% to 15.3%. But, Hanauer notes, “We know the CTC works wonders to boost economic security; when the expanded credit was in place in 2021 child poverty was cut by an astonishing 46 percent.”
Luis Guardia, President of the Food Research & Action Center (FRAC), also expressed support for the bill, noting, “Families are facing increasing challenges with the end of pandemic-related interventions, including the end of increased Supplemental Nutrition Assistance Program benefits and the loss of Healthy School Meals for All nationwide.
There does appear to be bipartisan support for making changes to the child tax credit, but the devil is in the details. Various proposals have been floated by Sens. Marco Rubio (R-FL) and Mitt Romney (R-UT), but those have yet to move forward.
The American Family Act is cosponsored by 204 Members of Congress. You can read the text of the bill here.