Will The Child Tax Credit Be Reduced?

Posted by Matin Varshochi in TaxesNovember 19, 2021(Last Updated July 25, 2022)4 min read
Key Takeaways
  • With the possibility of the Child Tax Credit payments taking a cut, it could potentially return to $1,000 by 2025.
  • The current $3,600 Child Tax Credit payment will be expiring at the end of the year if Congress does not renew it.
  • If you wish to receive Child Tax Credit payments for the upcoming year, you can apply for them when filing your annual tax return or use the Child Tax Credit Non-filer Sign-up Tool via the Internal Revenue Service website.
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The Tax Cuts and Jobs Act was passed in 2017, increasing Child Tax Credit payments from $1,000 to $2,000 per year for each qualified applicant and running until 2025. However, as the pandemic caused economic turmoil, President Joe Biden deemed the $2,000 too little and passed a bill to increase the maximum amount to $3,600. 


However, the bill that President Biden passed to increase the amount is set to expire at the end of the year, and if it is not renewed, it could result in the Child Tax Credit payments being reduced to $2,000, and possibly as low as $1,000.


The Current Child Tax Credit


Under the current Child Tax Credit (CTC) program, families can receive $3,600 for each child under the age of 6 and $3,000 for each child between ages 6 to 17. Those who claim the Child Tax Credit will receive their money in two ways, in a lump sum payment as well as advance monthly payments.


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When filing the 2021 tax return, 50% of the eligible Child Tax Credit amount will be given as a lump sum payment immediately. The other 50% will be evenly distributed via monthly payments, which began on July 15, 2021. 


Why the Change is Happening


The previous amount of income families who qualified for Child Tax Credit received was $2,000, which was in the deal, Tax Cuts and Jobs Act, passed in 2017. This bill allowed families’ income if they qualified to double from $1,000 to $2,000, and it will remain in effect until 2025.


However, due to the pandemic, the usual $2,000 was not sufficient to aid parents in paying for their children’s needs. Thus, President Biden implemented a short-term solution by increasing the maximum amount to $3,600 under the American Rescue Plan Act. As the plan is set to expire at the end of 2021, the most amount a parent could be entitled to in the upcoming year would be the original $2,000.


Effects of the Change in Tax Credit Payments


A study conducted by Columbia University discovered that in September 2021, of the millions of families entitled to the monthly Child Tax Credit Payments, 3.4 million were not in poverty due to the increased monthly amount. However, if the monthly amount is set to the amount proposed in the original bill, there will be an increase in the number of families returning to live below the poverty line.  


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Several studies have been conducted indicating that the reduction in Child Tax Credit payments will be detrimental to the economy’s long-term growth, which has led to economists advocating for the Child Tax Credit to remain at its current level. A group of 448 economists wrote a public letter to the leaders of Congress, fully supporting the higher level for the Child Tax Credit, claiming that it will help reduce poverty levels and improve the economy in the long run.  


Potential Solutions to the Tax Credit Change


As the plan is set to expire, leading to millions of families receiving less money for accommodating the children’s expenses, there have been talks regarding the potential option of expanding the program through 2025. Currently, President Biden wishes to extend the Plan until 2025, but the Democrats wish to extend it for only one additional year until 2022.  


Hypothetically speaking, if an extension were to happen, it would mean the bill must be passed through the United States Congress. However, as the first level of the United States Congress, the House of Representatives, has a Democrat majority, the program’s chances of being extended until 2025 will be more complicated than trying to have the program extended for an additional year. 


How to Qualify for Current Child Tax Credit


Although there is the possibility of the Child Tax Credit tax refund amount being lowered in the following year, if there is a chance that a person qualifies for it, they should apply for it when filing a tax return. 


Image Credit: Shutterstock.com


To be deemed eligible for the Child Tax Credit, two sets of requirements need to be met. 


  • The first requirement is that the annual income needs to be lower than the threshold depending on the applicant’s living situation: $75,000 for single parents, $150,000 for married couples, and $112,500 for the head of households.
  • The second requirement that must be met is the children which the Child Tax Credit is for, must be under the age of 18 at year’s end, have a valid Social Security number, and be a United States citizen. 


How to Sign up for the Child Tax Credit


If the applicant meets the qualifications listed above, then there are two ways for them to sign up and receive the Child Tax Credit. 


The first way is to receive the Child Tax Credit payments for the upcoming year, then apply for them and fill out the necessary forms when filing your 2021 tax return. The second way is if your level of income is not enough to file taxes. If that is the case, you can still apply and receive CTC benefits using the Child Tax Credit Non-filer Sign-up Tool.


If you did not file for the Child Tax Credit when filing your 2020 income tax return and failed to sign up for the monthly payments as they did not do so before the November 15 deadline, then do not worry, as you can file for it when filling out your 2021 income tax return. 


The increased Child Tax Credit payments have benefited millions of people as it has helped them stay out of poverty. As one of the government’s main goals is to improve the current and long-term economy, the chances of maintaining the current level of Child Tax Credit payments are high. 



What are your thoughts on the Child Tax Credit payments? Do you think a reduction will soon come? Let us know in the comments below.


Main Image Credit: Shutterstock.com

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