Lawmakers have proposed reinstating the monthly Child Tax Credit payments, which were provided to millions of families during the height of the pandemic. As part of their proposal, they have introduced a new bonus that grants a $2,000 credit in the first month following a child’s birth. In 2021, the Child Tax Credit was expanded to offer monthly payments to families facing financial difficulties due to the pandemic.
However, these tax changes have since expired, causing the program to return to its previous state. To address this, Reps. Rosa DeLauro (D-CT), Suzan DelBene (D-WA), and Ritchie Torres (D-NY) have put forward a recent legislative proposal. This plan aims to reinstate the monthly payments while also broadening eligibility for the credits. Additionally, it includes a provision for a $2,000 ‘baby bonus’ that would benefit families with newborns.
Implications and benefits of the proposed enhancements to the Child Tax Credit
According to DelBene, the enhanced Child Tax Credit, which was a pivotal component of the American Rescue Plan, has brought about significant positive changes. By cutting child poverty in half and bolstering the economy, it has enabled parents to meet essential needs such as rent, food, and other necessities for their children. DelBene emphasized that this proven program will contribute to the growth of the economy by rebuilding and fortifying the middle class.
Currently, the Child Tax Credit has a maximum amount of $2,000 per child annually, and it can only be claimed as a lump sum during tax filing, rather than being distributed through monthly payments.
However, under the new bill, families would receive an increased amount of $3,600 per year, equivalent to $300 per month, for each child under the age of 6. Additionally, families would receive $3,000 per year, or $250 per month, for each child aged 6 through 17, maintaining the same payment structure that was put into effect in 2021.
If the ‘baby bonus’ is put into effect, families with a child born in January could potentially receive up to $5,300 in credits during the child’s first year. This would be accomplished by receiving a $2,000 credit in January and subsequent monthly payments of $300 for the following 11 months.
It’s important to note that the total lifetime credits per child would remain consistent, regardless of the month of birth. Payments would continue until the child reaches 18 years of age. For instance, if a child is born in December and the family receives only $2,000 in the first calendar year, they would still receive the same total lifetime payments as a family whose child is born in January. The lifetime payment amount would not be affected by the specific birth month of the child.
Governor Kathy Hochul expands Empire State Child Credit to include children under 4 years old
In the Fiscal Year 2024 budget announcement, Governor Kathy Hochul revealed that the Empire State Child Credit will undergo an expansion to encompass children under the age of 4. Previously, this credit was solely available for children aged 4 to 17. With the latest expansion, eligible parents can now apply for the tax credit to support their infants and toddlers.
To qualify for the Empire State Child Credit, residents must meet certain conditions, including being a full-year New York resident or married to a full-year resident and having a qualifying child. The following criteria also apply:
- Possession of a federal child tax credit, additional child tax credit, or credit for other dependents (claimed on federal Form 1040 or Form 1040NR).
- A New York recomputed federal adjusted gross income of $75,000 or less for single, head of household, or qualifying surviving spouse tax filers; $110,000 or less for married couples filing jointly; or $55,000 or less for those married and filing separately.
For those who claimed the federal child tax credit, the Empire State Child Credit amount will be determined by the greater of the following: 33% of the portion of the federal child tax credit and federal additional child tax credit or $100 multiplied by the number of qualifying children.
Will the $2,000 baby bonus be a one-time payment or distributed over a certain period?
So far, the $2,000 baby bonus is a single payment disbursed during the initial month of a child’s life. But, there are discussions happening, with several ideas being talk about, including the expansion in time of the Child Tax Credit.
For example, Rep. Ashley Hinson (R-Iowa) presented a package of bills in the House of Representatives called the Providing For Life Act, an ambitious attempt at modernizing the federal government’s family care system. “By expanding the child tax credit to include the unborn and providing additional support to working families, empowering women to care for their babies regardless of socioeconomic status or zip code and improving access to community resources, we can make a meaningful difference for those in need,” Hinson said to the media.
The main highlight of this proposal is the enhancement of the refundable child tax credit, with the intention of raising the cap to $3,500 for children aged 5 and under, and $4,500 for children aged 6 to 17. To be eligible for this credit under the GOP bill, parents would be required to be employed.
Furthermore, the proposal seeks to extend the tax credit to unborn children retroactively. This means that when a child is born, parents would be able to claim the tax credit for the preceding year during the pregnancy, in addition to accessing the regular child tax credit for the current year.
Should the Child Tax Credit permanently expanded?
But, what if the Child Tax Credit was not only a one-time payment? Numerous studies demonstrate significant reductions in material hardship and/or food insecurity among impoverished children and families due to the expansion of the Child Tax Credit. Based on monthly data, there is compelling evidence that the expansion had a profound impact on reducing child poverty in 2021. However, after its expiration, child poverty increased from approximately 12% to 17% between 2021 and early 2022, as measured by the Supplemental Poverty Measure.
Contrary to the strong predictions made by a group of scholars at the University of Chicago, the studies listed above did not find any evidence of declining employment among parents in response to the expansion. Nevertheless, most analysts agree that the one-year expansion’s employment findings offer limited insights into the potential effects of a permanent change, particularly if parents had more time to familiarize themselves with the Credit and adjust their employment behavior accordingly.