Millions of families came to count on pandemic-era monthly child tax credit checks of up to $300 per child, a program that expired last December.
Now, a new Republican Senate proposal aims to restart the monthly payments to parents — with fresh requirements, however.
The proposal, called the Family Security Act 2.0, was created by Republican Sens. Mitt Romney of Utah, Richard Burr of North Carolina and Steve Daines of Montana, who describe it as a “pro-family, pro-life and pro-marriage plan.”
The proposal follows the expiration of an expanded child tax credit that gave families access to monthly child tax credit payments for the first time. That included $300 per month for each child under age 6 and $250 per month for each child ages 6 through 17.
More from Personal Finance:
Why racial justice groups want enhanced child tax credit reinstated
Protecting Social Security from inflation is high on voters’ wish lists
Biden moves to make sweeping changes to student loan system
The monthly payments started in July and ended in December, with families receiving in cash up to half the credit’s total value of $3,600 per child under 6 and $3,000 per child ages 6 through 17. Families received the remaining credit when they filed their tax returns this year.
As of 2022, the child tax credit has reverted to $2,000 per child under 17 with no advance monthly checks.
The 2021 expanded child tax credit helped reduce child poverty by about 30% as of December, as measured by monthly income, according to the Center on Budget and Policy Priorities.
“The research is so strong that kids’ lives would be so much better — school, health, future earnings,” said Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities.
“It had so much promise, it was such a major step forward,” he said. “So it’s terrible that it lapsed.”
The new Family Security Act 2.0 proposal is a “welcome development” showing there is support for strengthening the credit available to low-income families, the Center on Budget and Policy Priorities said in a new analysis.
Still, while it may “create an opening” for expansion this year, it has “significant weaknesses,” the group wrote of the proposal. Some children in families with little to no income may get a partial child tax credit or no credit at all. Moreover, a large cut to the earned income tax credit and other offsets could leave millions of children worse off, the Center on Budget and Policy Priorities found.
The offices of the sponsoring Republican senators had not replied to inquiries for comment by press time.
How much money families may receive
Under the Republican Senators’ plan, families would receive $350 per month per child up to age 5, for a total of $4,200 per year. They would receive $250 per month for children ages 6 through 17, for a total of $3,000 per year.
The benefits would be limited to up to six children annually.
In order to receive the full benefit, families would have to earn $10,000 in the previous year. Those who earn less than $10,000 would have their credits reduced proportionally to their earnings.
The child tax credit would start to phase out at $200,000 in income for single filers and $400,000 for joint filers. For every $1,000 earned above those thresholds, the credit would be reduced by $50.
Expectant parents would also be eligible to start receiving payments four months before their child’s due date. That would come to monthly payments of $700, for up to $2,800 per pregnancy.
The earned income tax credit, which provides a tax break to low- and moderate-income workers, would undergo cuts to both the phase-in rate and the maximum credit available to single parents and married couples with children.
How the changes would be paid for
The cuts to the earned income tax credit would result in an estimated annual savings of $46.5 billion.
The bill also calls for eliminating the state and local tax deduction, which the proposal calls “an inefficient tax break to upper-income taxpayers.” That change would yield an estimated $25.2 billion in savings.
It also proposes getting rid of head of household filing status, which would save about $16.5 billion.
In addition, eliminating the child portion of the child and dependent care credit would cut another $4.7 billion annually.
In total, those changes represent an annual savings of $92.9 billion.
The child tax credit’s ‘big weakness’
Under the current child tax credit, children in families with little to no income receive only some of the credit or no money at all. The Center on Budget and Policy Priorities calls this a “major flaw.”
That all changed last year when the American Rescue Plan Act temporarily made the credit fully refundable, which meant it was fully available to children in families with little to no income.
The estimated 30% decline in child poverty as of December was for approximately half of all Black children, half of Latino children, one-fifth of Asian children, one-fifth of white children and about half of children who live in rural areas, according to the Center on Budget and Policy Priorities.
Denying the credit to children based on their parents’ earnings will not help increase their parents’ employment and hurt the children’s futures, the group found.
Yet the Republican proposal has several strengths, according to the analysis. First, the credit phases in more quickly as a family’s income goes up and does so on a per-child basis.
Second, it also phases in the credit starting with the first dollar of earnings, rather than starting after the first $2,500 of earnings under current law.
Third, it also eliminates the current $1,500 cap that families can receive as a refund.
But there are other drawbacks to the plan, particularly with regard to cuts to the earned income tax credit and elimination of the head of household tax filing status, according to the Center on Budget and Policy Priorities.
For example, a mother earning $25,000 per year with a toddler and daughter in second grade would qualify for a $3,640 child tax credit, but would lose $4,105 from the earned income tax credit cuts, resulting in a $465 net income loss, according to the Center on Budget and Policy Priorities. If both children were age 6 or over, the net income loss would be $1,665.
About 7 million families earning less than $50,000 would end up worse off under the Republican plan compared with current law, according to the Center on Budget and Policy Priorities. The median loss would be more than $800 per family.