Is Child Credit Still the Relief Bill’s Best-Kept Secret?

Is Child Credit Still the Relief Bill’s Best-Kept Secret?

The Child Tax Credit (CTC) has been a cornerstone of financial relief for many American families. Recent changes and enhancements, particularly under the American Rescue Plan Act (ARPA) of 2021, have made this benefit even more significant. Despite its potential impact, some aspects of the Child Tax Credit might still be underutilized or misunderstood, making it one of the relief bill’s best-kept secrets.

Overview of the Child Tax Credit

Child Tax Credit Basics:

• Purpose: The CTC is designed to provide financial support to families with qualifying children, helping to reduce the tax burden and provide additional income for childcare expenses.
• Eligibility: Families with children under the age of 18 who meet certain criteria, such as being a dependent and a U.S. citizen, are generally eligible.

Recent Enhancements to the Child Tax Credit

The American Rescue Plan Act introduced several temporary changes to the CTC for the 2021 tax year, significantly increasing its benefits:

1. Increased Credit Amount:
   • The CTC was increased from $2,000 per child to $3,000 per child for children aged 6-17 and $3,600 per child for children under 6.
2. Advance Payments:
   • Eligible families received advance payments of the CTC, which were distributed monthly from July to December 2021, helping to provide immediate financial relief.
3. Fully Refundable Credit:
   • The credit became fully refundable for the 2021 tax year, meaning that even families with little or no tax liability could receive the full credit amount.
4. Expanded Eligibility:
   • The income phase-out limits were raised, allowing more families to qualify for the full credit amount.

Is the Child Tax Credit Underutilized?

Despite the enhanced benefits, many families may not fully understand or utilize the CTC. Here are some reasons why the CTC might still be the relief bill’s best-kept secret:

1. Lack of Awareness:
   • Some families may not be aware of the expanded benefits or may not know how to claim the credit on their tax returns.
2. Complexity of Tax Filing:
   • Navigating the tax system can be complex, and some families might miss out on the CTC due to confusion or errors in their tax filings.
3. Non-Filers:
   • Families who do not traditionally file tax returns, such as those with very low incomes, might not realize they are eligible for the credit.
4. Temporary Nature:
   • Since the significant enhancements to the CTC were temporary for the 2021 tax year, there may be uncertainty about the future of the credit, leading to hesitation or lack of action.

How to Maximize the Child Tax Credit

To ensure that you are maximizing the benefits of the CTC, consider the following steps:

1. File Your Tax Return:
   • Even if you do not owe taxes, filing a tax return is essential to claim the CTC. The IRS uses tax return information to determine eligibility and credit amounts.
2. Use IRS Tools:
   • The IRS provides online tools and resources to help you understand and claim the CTC. Utilize these tools to ensure you receive the correct amount.
3. Consult a Tax Professional:
   • If you are unsure about your eligibility or how to claim the CTC, consider consulting a tax professional who can provide guidance and help you maximize your benefits.
4. Stay Informed:
   • Keep up to date with any changes to the CTC and other tax credits. Legislative changes can impact the availability and amount of credits.

Real-Life Example: The Johnson Family

The Johnson family, with three children aged 4, 9, and 15, initially struggled to navigate the complexities of the tax system. After learning about the expanded CTC under the American Rescue Plan, they decided to seek assistance from a tax professional.

By filing their tax return and claiming the CTC, the Johnsons received $10,200 in total ($3,600 for the 4-year-old, and $3,000 each for the 9-year-old and 15-year-old). The advance payments helped them manage monthly expenses, and the full refundability of the credit provided significant financial relief.

Conclusion

The Child Tax Credit remains a powerful tool for financial relief, especially following the enhancements under the American Rescue Plan. While it might still be considered one of the relief bill’s best-kept secrets due to underutilization or misunderstanding, taking proactive steps to understand and claim the CTC can provide substantial benefits for eligible families. Stay informed, utilize available resources, and consult professionals to maximize this valuable credit.