A Reason To Spread the Word About the Child Tax Credit

Number of the Day: The most relevant or interesting figure in personal finance

6.4 Million

The Balance

That’s how many children may be missing out on the newly expanded child tax credit their families are eligible for, according to a new estimate, shrinking the potential reduction in child poverty rates by more than half.

Many low-income families had never qualified for the credit before, and getting the funds to them—up to $3,600 per child—is challenging if they don’t make enough money to file a tax return. Those who don’t file taxes must register for the credit online, but the Jain Family Institute, a nonprofit group, estimates many families aren’t. In fact, the money may be missing so many eligible families that instead of cutting child poverty by more than 40%—something the Congressional Research Service and other researchers predicted earlier—it will only reduce it by 11% to 18%, the institute said in a study published last week.

Overhauled by the American Rescue Plan pandemic relief bill in March, the 2021 child tax credit not only got bigger (the maximum went from $2,000 to between $3,000 and $3,600 per child, depending on age and family income,) but was expanded to cover low-income families who didn’t make enough money to claim an offset to taxes in the past.

The Jain Family Institute researchers suggested the government consider other outreach efforts, including automatically registering children for the credit at birth or if they’re enrolled in other benefit programs. 

Democrats on Capitol Hill have proposed doing just that, as well as extending the 2021 changes to the tax credit through 2025, as President Joe Biden has called for. The changes are part of an ambitious $3.5 trillion spending package being hashed out by lawmakers on the House Ways and Means Committee this week.

Half of the 2021 credit is being distributed as a monthly payment of up to $300 per child unless parents opt out of them. The next round will land in bank accounts Wednesday.