Personal finance

Democrats look to extend the expanded monthly child tax credit payments through 2025. The terms could still be up for negotiation

Mint Images – Tim Robbins

As Democratic lawmakers on Capitol Hill work to bring their new reconciliation bill across the finish line, a proposal to keep the expanded child tax credit could be changed.

A more generous child tax credit was authorized earlier this year by President Joe Biden and Congress to help give families additional financial relief in the wake of the Covid-19 pandemic.

It has provided millions of families with direct monthly payments of up to $300 per child that started in July.

But the more generous child tax credit — representing total sums of up to $3,600 per child — is only in place for this year.

House Democrats unveiled their proposal last week to keep the expanded credit in place through 2025.

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House Democrats propose extending expanded child tax credit to 2025

But in a recent interview, Sen. Joe Manchin, D-W.Va., said he would prefer the terms of the credit include some kind of work requirement in order for parents to receive it.

“Don’t you think, if we’re going to help the children, that the people should make some effort?” he said during a Sunday interview on CNN.

Democrats are looking to move the changes through under a process known as reconciliation, which requires a simple majority vote in the Senate.

“Democrats need 100 percent support in their ranks to pass this through reconciliation, so if Senator Manchin feels it’s a priority, it will be a priority,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

How work factors into the child tax credit

The expanded child tax credit includes up to $3,600 per child under age 6 and $3,000 per child ages 6 through 17. Previously, the credit was $2,000 per child under 17, and will revert back to that if the temporary changes put in place for 2021 are not extended.

With the expanded child tax credit, lawmakers also created monthly direct payments for the first time. Starting in July, families received payments of up to $300 per month for children under 6 and $250 per month for those ages 6 to 17.

Those monthly payments are slated to continue through December. Families can claim the remaining money when they file their tax returns next year.

The more generous credit applies to families under certain income thresholds — $150,000 for married couples who file jointly and $112,500 for unmarried parents.

Also, parents do not need a certain level of income before they can qualify. Previously, the credit started phasing in at $2,500 in earned income. Now, parents can qualify even if they have $0 in income.

In addition, parents can now receive the full sums as refunds, versus a limit of $1,400 previously.

How lawmakers could compromise

Senate Majority Leader Chuck Schumer (D-NY) speaks during a news conference on families helped by the Child Tax Credit at the U.S. Capitol July 20, 2021 in Washington, DC.
Win McNamee | Getty Images

The expanded child tax credit has been met with enthusiasm by advocates who say it has dramatically reduced child poverty.

One thing could get in the way of approving the proposed extension is costs.

Manchin has also said that he will not support the $3.5 trillion overall price tag.

Democrats could compromise to bring the cost of the expanded child tax credit lower, Akabas said. That could include making part of the credit fully refundable in the form of an allowance that is paid monthly throughout the year, and another part that is closer to the previous child tax credit structure that starts phasing in at a low level of earnings, he said.

The Bipartisan Policy Center has drafted its own proposal for how a new permanent expansion of the child tax credit could work in coordination with changes to the earned income tax credit, which also serves as an anti-poverty program.

Ultimately, there is a balance between providing universal support to families and encouraging work force participation for those who are struggling to make ends meet, Akabas said.

“That is how ultimately they are going to be most economically successful,” Akabas said of work force participation.

As Democrats negotiate over a long list of priorities, it is too soon to tell exactly how the expanded child tax credit could end up. Some Democrats are opposed to tying it to earnings.

“That will be a debate they will have in the coming weeks,” Akabas said.

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