- Expansions of the EITC and CTC were implemented as part of the American Rescue Plan Act.
- As of now, these expansions are temporary and only apply to the current tax year.
- Many needy Americans were ineligible or weren’t aware of actions they need to take to claim these credits.
- Bobbi Dempsey is a freelance writer, economic justice fellow at Community Change, and reporting fellow at Economic Hardship Reporting Project.
- This is an opinion column. The thoughts expressed are those of the author.
- See more stories on Insider’s business page.
The American Rescue Plan Act signed by President Biden in March included a range of major actions and initiatives designed to provide immediate, significant economic relief to the many Americans struggling through financial hardships related to the pandemic.
Chief among those is a pair of tax credits that has been greatly enhanced and expanded: the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC).
These tax credit expansions should provide much-needed but temporary relief to needy Americans – but there were some critical flaws in the implementation and execution that may leave some eligible recipients shortchanged or left out completely, while other disadvantaged US families weren’t eligible at all.
The basics of the tax credit expansions
The Child Tax Credit actions make the credit fully refundable – meaning, if the tax credit is more than a household’s tax liability, they will get the excess back as a refund – while also increasing the amount families receive and getting rid of the work requirement. Eligible families will start seeing the impact of the CTC changes quickly, as advance payments will start reaching these families in monthly increments beginning in July and running through the end of the year.
The expansion of the Earned Income Tax Credit will especially help childless Americans, generally meaning people who do not have any children who could be claimed as dependents, who are living below or near the poverty line.
The act raises the maximum EITC for childless adults from around $530 to roughly $1,500. It also expands the age range of childless workers eligible for the tax credit.
Those who benefit from these credits urgently need this support, which will offer a bit of relief to help them keep their heads above water financially. While my household doesn’t currently include any dependent children, it does contain several adults who will benefit from the expanded EITC.
Some major pitfalls
These tax credit expansions were a good first step, but in their current form, they fall woefully short. For one, the expansions are temporary. As of now, the actions are only effective for the 2021 tax year. There is reason to hope that may change, though. In late March, dozens of Democratic senators sent a letter to President Biden urging him to make the changes to the CTC and EITC permanent.
Another issue is that eligible people who fail to file a tax return will miss out. People need to file their taxes in order to receive these credits. This is true even for those who otherwise normally would not need to submit a tax return because they have no tax liability.
This requirement is most likely to trip up adults without dependent children and with little taxable income because they might not be required to file a tax return and may be unaware that by failing to file they lose out on this refundable credit.
By contrast, taxpayers with dependent children are more likely to already be in the habit of regularly filing an annual tax return – even if they have minimal taxable income – in order to take advantage of credits and other tax breaks they would get routinely, during pre-pandemic times. But those parents who didn’t file a 2019 or 2020 return won’t receive any of the money from this credit until after filing their 2021 return next year – meaning they won’t get the advance payments this summer.
I’m not sure the government and organizations that serve low-income populations have done a sufficient job of educating people about these credits, how the process works, and why it’s important for them to file a tax return even if they normally wouldn’t.
I suspect that some people may assume that the government will simply send them a check or find some other way to get this money to them, similar to the process for distributing stimulus payments. Unfortunately, that is not the case. Tax credits are tied to tax returns and are disbursed through a process that is triggered by the filing of a tax return. Those who don’t file a tax return will simply miss out.
Also, a large number of immigrant or “mixed status” families are ineligible. Under current federal law, all household members listed on the tax return must have a Social Security number in order for the family to be eligible for the EITC. An Individual Taxpayer Identification Number – an identifying number used solely for tax purposes that is assigned to people who cannot obtain a Social Security number, such as non-citizens and undocumented immigrants – is not sufficient. If even one person on the tax return lacks a Social Security number, all members of the tax household are ineligible. This will impact many mixed status families.
A good first step, but a long way to go
These temporary expansions will definitely make a difference for these eligible families who are able to complete the steps necessary to receive them. But this is a limited, short-lived solution for a long-term problem. I’m hoping that seeing the positive impact on those who benefit from these expansions will motivate lawmakers to correct the shortfalls and inadequacies – and then make those improved actions permanent.