Personal finance

The enhanced child tax credit will continue for 1 more year, per Democrat spending plan

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The enhanced child tax credit is one of the programs that made the cut as Democrats raced to come to an agreement over a framework for their spending plan.

The credit, which was expanded in March by the American Rescue Plan, will be continued through 2022, according to a framework of the now $1.75 trillion proposal released Thursday. The move will ensure that some 39 million families with children receive the benefit for at least one more year.

In addition, full refundability — a recent change to the credit that allows children in the poorest families to get the money — will be made permanent.

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Details of the credit

This year, the existing child tax credit was expanded to include more children than ever before. The benefit was increased to $3,000 from $2,000 for children ages 6 to 17, with an additional $600 bonus for children under the age of 6.

Most American families receive some money from the child tax credit. The full enhanced benefit goes to married couples with up to $150,000 in adjusted gross income and single-parent families with up to $112,500.

The first half of the credit began going out to eligible families in advance monthly payments that started in July. Families will get the second half of the credit when they file 2021 taxes next year. Through October, the IRS and U.S. Treasury Department have sent out $60 billion in funds to more than 36 million households.

An anti-poverty program

Early data showed that families have been putting the money to good use. About one-third of families used the first three checks to buy school supplies, and 40% of those with young children spent the money on child care, according to the latest Household Pulse Survey from the U.S. Census Bureau.

Other studies showed that the checks were a powerful anti-poverty measure. The first two checks lifted 3.5 million kids out of poverty, according to a study from the Center on Poverty and Social Policy at Columbia University. If extended through 2025, it could lower the child poverty rate to 8.4% from 14.2%, according to the Urban Institute.

The money also slashed hunger rates among children and eased financial anxiety for families.

Making the credit fully refundable meant that an additional 27 million children, many Black and Latino, were able to access the benefit for the first time, according to the Center on Budget and Policy Priorities.

What’s next

The current proposal falls short of what many Democrats wanted for the enhanced child tax credit. Many argued for making the benefit permanent, and President Joe Biden’s previous proposal wanted to continue it through 2025.

There may still be changes to the program going forward, as Democrats have to vote on the framework and then write the actual legislation.

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