2021 May Be the Only Time You Get to Claim This Credit
Parents may not qualify to save as much on their taxes in future years.
- The American Rescue Plan Act provided for an expanded Child Tax Credit in 2021.
- The expanded credit expired at the end of the 2021 tax year.
- It's unlikely the credit will be renewed, at least any time soon.
For tax year 2021, parents have an unprecedented opportunity to claim a generous tax credit designed to help them provide for their children. This comes in the form of the expanded Child Tax Credit.
Unfortunately, the 2021 tax filing year may be the only chance parents have to score such a substantial amount of savings. Here's why.
This credit was available for a limited time only
The expanded child Tax Credit was signed into law as part of the American Rescue Plan Act. This coronavirus relief bill was the cornerstone of President Biden's first year in office.
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The American Rescue Plan Act became law in March of 2021. Among other things, it temporarily changed the rules for the existing Child Tax Credit. The original credit was worth up to $2,000 per child -- and up to $1,400 of that amount was refundable. When a credit is refundable, it can reduce your tax bill below $0 and make it possible to get more money back into your bank account from the IRS than you paid into the tax system.
With the expanded Child Tax Credit, the amount of the credit was raised to $3,600 per child under 6 and $3,000 for older children. The law also made it so the entire amount of the credit was refundable. That meant lower-income parents who didn't have a big tax bill would get more funds, which is important since this group is often the most in need of assistance.
The change to the expanded Child Tax Credit helped to move millions of children out of poverty. However, the American Rescue Plan Act provided for that extra money only for 2021. That means you can claim it for last year when you file your taxes in 2022 -- but the credit is reverting back to the standard $2,000 max for this year and beyond.
Will the expanded Child Tax Credit be extended?
When Democrats included the expanded Child Tax Credit in the American Rescue Plan Act, the hope was that it would be very popular and that it would become permanent. President Biden and many others on the left proposed a large-scale bill called Build Back Better, which would have extended the tax credit for longer, as well as making many other changes to existing laws.
However, there is no Republican support for the legislation, and Democrats have thus far been unable to muster the requisite number of votes to pass it on a party-line basis. Democrats have just 50 votes in the U.S. Senate out of 100. However, the vice president can break ties so they have a maximum of 51 votes for partisan legislation if all senators who caucus with the Democrats vote in favor of it.
Because of a procedural obstacle called the filibuster, legislation would need 60 votes to move through the standard process. The 50 votes the Democrats have isn't enough. There is, however, an alternative called reconciliation. Reconciliation enables a bill to become law with 51 votes, but it can be used a limited number of times. While many on the left hoped to extend the expanded Child Tax Credit using reconciliation, moderate Democratic senators have not gotten on board.
One Democrat in particular, Sen. Joe Manchin of West Virginia, has expressed concerns about the expanded credit, and it's unlikely he will vote for it. This means the chances of it continuing in 2022 and beyond are very slim.
Parents need to be sure they're getting the full amount of this money they're due when they file their returns this year. The best tax software can help make that possible. It's also a good idea for parents to plan for the fact that this tax savings is not likely to be available to them in the future.
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