President Joe Biden’s biggest success immediately after coming to power was the expansion of the Child Tax Credit stimulus check. From $2,000 per child per year, it was expanded to $3,600 per child. There were other sweeping changes brought about in this scheme under the American Rescue Plan Act, signed in March 2021. While it lasted only the first year, Biden wants it reintroduced in the coming fiscal.
Reports show that the expanded version of the Child Tax Credit was a huge success in fighting poverty. For the first time in decades, child poverty showed a marked decline in 2021 and through the first quarter of 2022, the period when the payments were made. One measure of the poverty rate fell to its lowest level last year, reports a Census Bureau report.
The expanded Child Tax Credit helped slash child poverty by close to 50% in some cases. It slid to 7.8% in 2021, the lowest recorded level on the back of the extraordinary amount of federal backing. It stems in large part from the Child Tax Credit payments, but also due to the enhanced weekly unemployment checks that were continued up to the first week of September 2021. It was also thanks to the third stimulus check under the American Rescue Plan Act.
The report by the Census Bureau also indicated that there was a 50% drop in the number of children and their families living in poverty. This data was gleaned from the Supplemental Poverty Measure (SPM). It is a metric that accounts for federal assistance such as food stamps, revised wages, and the Child Tax Credit payments.
The official poverty rate stands higher at 11.6%, though it doesn’t factor in assistance measures such as the SPM. This rate was 5.2% in 2021 for children after staying at nearly double that rate a year earlier at 9.7%. and in 2009, the SPM rate for children (below eighteen) was 17%.
Experts maintain that the child tax credit, the enhanced version, had the biggest impact among all federal relief programs. They said that it was a historic achievement as it reduced child poverty by a record measure driven by the expansion of the CTC payments. They say that it remains a measure of policy success.
While such measures normally elicit a steady response, the decline in this case for the Child Tax Credit was quite significant. And one of the factors that enhanced this reduction in poverty level was that the Child Tax Credit was for the first time available to low and moderate-income families with children, families that did not even exist in the records of the IRS earlier. Earlier only tax-paying families could avail of this federal scheme.
But the cessation of the CTC payments after the first year in 2021 brought things back to the same level it was before the pandemic. the poverty level among children again revealed an abrupt increase and it was back to the alarming levels that were normal before the pandemic.
Requirement For The Earlier Child Tax Credit
To claim the Child Tax Credit for 2020, 022, and the earlier tax years, you must determine if your child is eligible. There are 7 major requirements, all of which have to be met. For these years, a child must have been under 17 years at the end of that tax year for which the Child Tax Credit is claimed. The child can be a biological child, a foster, or a step-child in your custody by order of an authorized agency or the court.
An adopted child always enjoys all the privileges of your child. They include a child lawfully with you for legal adoption, even if the adoption process is not final by the end of the financial year.
Taxpayers or claimants can also include their siblings, including step-brothers and sisters. And you can also claim descendants of these qualifying persons that include your nephews and nieces, and also your grandchildren if they qualify for the other tests.
To qualify for the Child Tax Credit, the child cannot provide over 50% of their financial support during the tax year. The child or children must also be claimed as a dependent in that tax year.
The child must also be a citizen of America, or a US national or US resident alien. For tax purposes, the term national refers to individuals born in the Commonwealth of the Northern Mariana Islands or American Samoa.
One of the most important qualifying tests is the residence test. The child must have lived with their parents for over half of the tax year for which they claim the credit. But there is an important exception. A child must have lived with the claimant for over half the tax year for which that credit is claimed. But there are vital exceptions to the rule.
A child who was born or died during the tax year is considered to have lived for the entire duration of that tax year. The temporary absence of the child for exceptional circumstances is counted as time lived. This includes absence from school, business, vacation, military service of parents, medical care, and detention in a juvenile facility.
There are also several exceptions for the residency test for children, separated, or divorced families. The details for these are given in Form 1040. The Child Tax Credit amount gets reduced if the Modified Adjusted Gross Income is above the stipulated limit that is determined every year. The phase-out for 2022 begins with $200,000 and $400,000 for married couples filing jointly.
In 2017 the phase-out threshold was $55,000 for joint filers filing separately, $75,000 for individual filers, head of household, qualifying widows, and widowers. It was $110,000 for married couples filing jointly. For every $1,000 of income above the threshold, the available Child Tax Credit gets reduced by $50.
The enhanced Child Tax Credit payments reduced the number of children living in poverty by roughly half. This data was given by the Supplemental Poverty Measure. This metric accounts for federal assistance such as the Child Tax Credit, food stamps, and wages.