Expansions of the Child Tax Credit and Earned Income Tax Credit were an important move, but they are only temporary and leave out too many Americans in need

Biden signs American Rescue Plan
US President Joe Biden signs the American Rescue Plan on March 11, 2021, in the Oval Office of the White House in Washington, DC.

  • 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.

Read the original article on Business Insider

4 measures in the Biden stimulus law that provide extra cash for Americans

Joe Biden
President Joe Biden.

  • The $1.9 trillion Biden stimulus law was enacted last week.
  • Some elements could strengthen the nation’s social safety net in the wake of the pandemic.
  • Provisions include larger tax credits and enhanced unemployment insurance.
  • See more stories on Insider’s business page.

President Joe Biden signed a $1.9 trillion stimulus law last week, among the largest government rescue measures in American history.

Many of its provisions are directed at keeping individuals and families afloat as vaccinations become more widely available. Still, some aspects of the law may end up dramatically remaking the social safety net.

“This package sets a new and powerful precedent, especially for helping children and their families when they have limited or no income,” Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality, said in a recent interview with Insider.

(1) $1,400 stimulus checks

The relief law includes a $1,400 direct payment for most taxpayers. Those will be distributed over the next few weeks, and some are already going out the door.

Individuals earning up to $75,000 and couples making up to $150,000 qualify for full checks. A married couple, then, can get $2,800. People can also collect an extra $1,400 per adult dependent, a change from the first two federal payouts.

People earning above those thresholds still qualify for a smaller direct payment. But eligibility is capped at individuals earning more than $80,000 and joint filers bringing in more than $160,000, meaning people and households making above those amounts are paid nothing.

(2) $300 federal unemployment benefits through Labor Day

The law provides $300 in weekly federal unemployment benefits until September 6. The measure renewed the government supplement to state unemployment checks for an extra six months.

It extends the length of various programs, such as the Pandemic Unemployment Assistance program for gig workers and the Pandemic Emergency Unemployment Compensation for long-term unemployed people. Both will expire in September without additional action in Congress.

(3) Expanded tax credits

The law also beefs up the child tax credit for millions of families. For the next year, it provides $3,600 per child aged 5 and under, and $3,000 for each kid aged 6 to 17.

Payments were designated as “periodic” to clear Senate procedural hurdles, but Democrats want to implement advance monthly checks to families of up to $300, although it’s unclear if the IRS can accommodate that request. Advance checks could start going out on July 1, the legislation indicates.

Other tax credits are augmented as well, such as the Earned Income Tax Credit. The law nearly triples the maximum amount a childless worker can receive, from $540 to $1500. The income cap for adults is also lifted from $16,000 to $21,000, a step widening its reach.

(4) Bigger SNAP benefits

The measure also aims to address hunger and food insecurity through the Supplemental Nutritional Assistance Program. It renews a 15% boost to SNAP benefits through September.

Put another way, the increase is equal to $27 more in SNAP benefits per person each month, or just over $100 monthly for a family of four, according to the Center on Budget and Policy Priorities.

Read the original article on Business Insider