California parents would get big tax breaks under Biden proposal. Here’s how much to expect
Low and middle income families struggling to pay for child care and other expenses would see big new tax breaks through 2025 under the White House’s new child tax credit plan, according to a new analysis.
Most of the breaks would go to households with incomes less than $51,700, but even those with lower six figure incomes would get some help, says data from the Institute on Taxation and Economic Policy, a Washington-based research firm.
President Joe Biden’s American Families Plan, unveiled Wednesday, would continue to give qualifying families $3,000 a year for each child 6-17 and $3,600 annually for those 5 and under through 2025.
Those amounts are now in place only for this year. Extending the credit would mean that next year, the poorest 20% of qualifying Californians, with incomes of up to $29,100, would average a $4,110 benefit, and they’d get slightly more in succeeding years.
Qualifying households with incomes of $29,100 to $51,700 would average a $2,940 boost in credits next year..
The child tax credit extension is part of the $1.8 trillion Biden plan that would create other benefits for families with children. A separate credit, the temporarily beefed-up Child Care and Dependent Tax Credit, would become permanent.
That break is designed to help families specifically with child care expenses. The child tax credit can be used for any child related expense.
Overall, ITEP estimates that California taxpayers would receive a $12.9 billion benefit next year from the child tax credit alone.
The credits would be “refundable,” meaning that if the credit is larger than the tax you’re supposed to pay, the government will make up the difference. So if you owe $600, but qualify for $3,000 in credits, Washington will give you $2,400.
“The administration’s move to make the credit fully refundable on a permanent basis is really a game changer,” said Aidan Davis, ITEP senior state policy analyst
The credit would have a significant impact on reducing child poverty, explained Davis, as it would “move the needle on the stubbornly high rate of child poverty in the United States.”
Previously, more than one-third of children were considered “too poor” to qualify for the full benefit of the credit and many were left out altogether, she said.
How much could I get?
The full credit would go to individuals with adjusted gross incomes of $75,000 or less and joint filers earning up to $150,000. After that it begins to phase out.
Here’s what ITEP found the Biden plan means to middle and upper income earners receiving the credit:
▪ Middle 20% of incomes ($51,700 to $83,200): average credit boost of $2,650.
▪ Next 20% ($83,200 to $151,100): average credit boost of $2,250.
▪ Next 15% ($151,100 to $358,700): average credit boost of $1,780.
Above that level, very few families would see a break for the credit..
Under the new law, the Internal Revenue Service plans to begin sending out monthly checks, which will represent one-twelfth of the benefit, starting in July.
That means those who qualify for the full amount will receive $300 each month for children 5 and under and $250 for those 6 to 17. The credit for the first half of 2021 will be provided when people file their 2021 tax returns next year.
But for 2022, without further action, the credit limits would revert to a maximum of $2,000 per child under 17 and the benefit would be reduced even more dramatically, or taken away entirely, for many low-income families.
Continuing the monthly payment is particularly important to lower income families, said Elaine Maag, principal research associate at the nonpartisan Urban Institute-Brookings Tax Policy Center.
“Monthly payments could help people pay those regular bills. Demonstrations of monthly cash payments have shown recipients were healthier, able to pay down debt, and experienced reduced strain from unpaid care work, food insecurity, and underemployment,” she said.
Help with child care expenses
The proposal is part of a sweeping series of changes Biden has proposed to help families with children.
He would make increases to another major family tax break, the Child and Dependent Care Tax Credit, permanent. Families this year can get a credit for up to half of their spending on qualified child care for children under age 13, up to a maximum of $4,000 for one child and $8,000 for two or more.
Families earning less than $125,000 annually could get a 50% reimbursement. Those with incomes of $125,000 to $440,000 could get a partial credit..
Child care advocates are eager to see Biden’s change. “With the early learning investments and tax credits included in the American Families Plan, there is no doubt that President Biden understands that child care is not just a kitchen table issue, but an essential pillar of the American economy.,” said Sarah Rittling, executive director of the First Five Years Fund, which advocates for young children’s issues.
The plan has drawn resistance from Republicans, including some who have long championed tax credits for families.
Sen. Mitt Romney, R-Utah, supports a permanent extension of the Child Tax Credit. His “Family Security Act” would provide a $4,200 credit to qualifying families for each child under 6 and $3,000 to those with children 6 to 17. Among his methods of paying for the break would be to eliminate the state and local tax federal income tax deduction entirely.
Romney told The Bee he’s “not in favor of a plan which expires as the president’s does.” But, he added, “We ought to be able to get this done. We haven’t sat down and had a negotiation on this yet.”
This story was originally published May 1, 2021 at 5:00 AM.
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