Should Congress Extend the Tax Credit for Child Care and Dependent Care?

Background

The Child Care and Dependent Care tax credit provides relief for people who care for children and other dependants. The standard tax credit has been $2,000.00 per child.  

The effects of the pandemic and the need to care for dependents drove many people out of the workforce, with some parents forced to leave jobs or reduce work hours to care for their children who could not attend school.  Many parents could not find or afford child care.

However, The American Rescue Plan, passed shortly after Biden’s election, increased this to $3,600.00 for children ages 6-17 and made it possible for caregivers to receive this in monthly payments.  

The change is explained by the Congressional Digest:

“Single parents with an adjusted gross income (AGI) of $75,000 or less and couples with AGI of $150,000 or less may be eligible for the expanded tax credit of $3,600. 

According to an analysis from the Tax Policy Center, a collaboration between the Urban Institute and the Brookings Institution, more than 90% of families with children under the age of 18 will receive some benefit from the new law. Advocates pointed to research that the expanded credit could reduce child poverty in the U.S. by 45% and have called for the credits to be made permanent.”

The policy is currently in effect but the value of the tax credits will be reduced after this year.

The Child and Dependent care tax credit available only through the end of 2022 October 2022

“Time is running out to claim the expanded Child Tax Credit that could bring an eligible family as much as $3,600 per child under the age of 6.

“Taxpayers who are paying someone to take care of their children or another member of household while they work, may qualify for child and dependent care credit regardless of their income. For tax year 2021, the maximum eligible expense for this credit is $8,000 for one child and $16,000 for two or more. Depending on their income, taxpayers could write off up to 50% of these expenses.”

For the purposes of this credit, the Internal Revenue Service (IRS) defines a qualifying person as:

  • A taxpayer’s dependent who is under age 13 when the care is provided.
  • A taxpayer’s spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.
  • Someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months and either:
  • The qualifying person was the taxpayer’s dependent or
  • They would have been the taxpayer’s dependent except for one of the following:
  • The qualifying person received gross income of $4,300 or more
  • The qualifying person filed a joint return
  • The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else’s return”

 

General

Child and Dependent Care Credit FAQs  IRS 

The Child Tax Credit: Legislative History Congressional research Service

Understanding the child and dependent care credit IRS official policy

Yes – it should be expanded again

*Studies estimate the annual cost of child poverty in the U.S. is as much as $1.1 trillion.

*It has lifted millions of children out of poverty

*Reducing child poverty directly increases healthy brain development

*In a tight labor market – the tax credits keep Americans in the workforce

*The Tax credit puts 19 billion dollars into local communities and small businesses each month

*The Child Tax Credits are the first step towards a “Basic Universal Income”

*Basic Universal income works

Future of child tax credit may be foggy, but its benefits are growing clearer

Benefits of Expanding Child Tax Credit Outweigh Small Employment Effects

Studies estimate the annual cost of child poverty in the U.S. is as much as $1.1 trillion.

Millions of kids were thrust back into poverty after the child tax credit expired. What’s next?

Being Poor Affects Kids’ Brains, Study Finds

Giving low-income families cash can help babies’ brain activity

New Data Show Expanded Child Tax Credit Will Inject Nearly $19.3 Billion Into Local Economies Each Month

‘I’m not stressed’: guaranteed income programs are changing the lives of American parents

No

This was tough!  I really couldn’t find documented support against the concept or expanding it. There is almost universal political support for this tax credit.  

There are some Republicans that argue we shouldn’t make the payments monthly – because that is too much like the start of a basic “Universal Income” plan – and that caregivers should wait until they file their taxes to receive the benefits.

However, there is currently legislation by Mitt Romney, Republican Senator from Utah, who has proposed expanding it but modifying the amount and requirements for eligibility.  Romney’s plan would keep the monthly payments.

This leaves us with 2 questions:

  • How  much should the tax credit be in the future?
    Will there be additional requirements in order to qualify for this credit?

New Republican plan calls for renewing monthly child tax credit payments — but there are ‘significant’ trade-offs, one report finds

Pros and Cons of Expanding the Child Tax Credit Congressional Digest

The Child Tax Credit is the precursor for Universal Basic Income

Universal Basic Income is a Bad Idea

5 Problems with Universal Basic Income