As Democratic lawmakers on Capitol Hill work to complete their new reconciliation bill, a proposal to keep the expanded child tax credit may be modified.
President Joe Biden and Congress authorized a more generous child tax credit earlier this year to help provide additional financial relief to families affected by the Covid-19 pandemic.
Since July, it has provided millions of families with direct monthly payments of up to $300 per child.
However, the more generous child tax credit – worth up to $3,600 per child – is only available this year. Last week, House Democrats unveiled their proposal to extend the expanded credit through 2025.
However, in a recent interview, Sen. Joe Manchin, D-W.Va., stated that he would prefer the credit’s terms include some kind of work requirement in order for parents to receive it.
Democrats hope to get the changes passed through a process known as reconciliation, which requires only a simple majority vote in the Senate.
“Democrats need 100 percent support in their ranks to pass this through reconciliation,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. The expanded child tax credit is worth up to $3,600 per child under the age of six and $3,000 per child aged six to seventeen. Previously, the credit was $2,000 per child under the age of 17, and it will revert to that amount if the temporary changes enacted for 2021 are not extended.
For the first time, lawmakers created monthly direct payments with the expanded child tax credit. Beginning in July, families received payments of up to $300 per month for children under the age of six, and $250 per month for those aged six to seventeen.
Those monthly payments are scheduled to continue until December. Families can claim any remaining funds when they file their tax returns the following year. The larger credit is available to families earning less than $150,000 for married couples filing jointly and $112,500 for unmarried parents.
Furthermore, parents are not required to have a certain level of income in order to qualify. Previously, the credit began to phase in at $2,500 of earned income. Parents can now qualify even if they have no income.
Furthermore, instead of a $1,400 limit previously, parents can now receive the full amount as a refund.
Advocates have praised the expanded child tax credit, claiming that it has significantly reduced child poverty.
Costs could be an impediment to approving the proposed extension. Manchin has also stated that he will not support the overall price tag of $3.5 trillion.
According to Akabas, Democrats could reach an agreement to reduce the cost of the expanded child tax credit. This could include making a portion of the credit fully refundable in the form of a monthly allowance paid throughout the year, and another portion similar to the previous child tax credit structure, which begins phasing in at a low level of earnings, he said.
The Bipartisan Policy Center has developed its own proposal for how a new permanent expansion of the child tax credit could work in tandem with changes to the earned income tax credit, which also serves as a poverty-reduction program. Finally, there must be a balance between universal support for families and encouraging work force participation for those who are struggling to make ends meet, according to Akabas.
“That is how they will ultimately be most economically successful,” Akabas said of labor force participation.
It is too early to tell how the expanded child tax credit will end up as Democrats negotiate a long list of priorities. Some Democrats are opposed to making it contingent on earnings.