BCN Staff – April 26, 2021 – Many families in Arkansas and across the U.S. should begin receiving cash assistance following the historic increase in support for working families impacted by COVID-19, the Biden administration announced last week.
Under the American Rescue Plan’s expansion of the federal Child and Dependent Care Tax Credit (CDCTC), all families with incomes below $125,000 will save up to half the cost of their eligible child care expenses, getting back up to $4,000 for one child and $8,000 for two or more children, when they file taxes for 2021. And families making between $125,000 and $438,000 can receive a partial credit.
In the 2020 tax year, a family claiming less than $700 on average towards the cost of care, and many low-income working families often got nothing. Thanks to the historic expansion of the CDCTC in the American Recovery Plan, a median income family with two kids under age 13 will receive up to $8,000 towards their childcare expenses when they file taxes for 2021, compared with a maximum of $1,200 previously.
And for the first time, the CDCTC will be fully refundable, making the credit fairer by allowing low-income working families to receive the full value of the credit towards their eligible childcare expenses regardless of how much they owe on their 2021 taxes.
In announcing key details of the American Rescue Plan last month, President Joe Biden noted that the child tax credit would especially aid women of color and working mothers who had to pivot during the pandemic to take care of at-home children and sick relatives impacted by COVID-19. He said monthly payments are scheduled to begin in July and will extend into 2022.
“The expansion of the Child Tax Credit allows more families to benefit, increases the size of the benefit, and distributes benefits monthly,” said Biden. “Altogether, the American Rescue Plan will cut child poverty by more than half; poverty levels for Black children are expected to fall by 52%, by 45% for Hispanic children, and by 61% for Indigenous children.”
In conjunction with many families getting CDCTC checks in the mail or deposited into their bank accounts this week, the Biden Administration last week also announced the release of $39 billion of American Rescue Plan funds to states, territories, and tribes to address the childcare crisis caused by COVID-19.
These funds will help early childhood educators and family child care providers keep their doors open. These providers have been on the frontlines caring for the children of essential workers and support parents, especially mothers, who want to get back to work. These funds are a critical step to pave the way for a strong economic recovery and a more equitable future.
Out of that multibillion dollar fund, $24 billion in child care stabilization funding will be disbursed to all 50 states for child care providers to reopen or stay open, provide safe and healthy learning environments, keep workers on payroll, and provide mental health support for educators and children. States will also divide $15 billion in more flexible funding to make childcare more affordable for more families by allowing states to access to high-quality care for families receiving subsidies, raise pay and compensation for early childhood workers, and meet other childcare needs as desired.
Arkansas’ portion of that fund will total $464.4 million, including $286.1 million from the child care stabilization fund and $178.5 million in so-called “flex” funding. These funds are in addition to the $1400 from the “stimmy checks” that most American families and individuals making less than $75,000 annually have received over the month.
According to the IRS and the U.S. Department of the Treasury, the Biden administration last week disbursed the sixth batch of Economic Impact Payments from the American Rescue Plan. As of April 22, the IRS has completed 161 million payments totaling more than $379 billion since these stimulus checks began rolling out to Americans in batches on March 12.
For those families expecting funds from the expanded child tax credit, here are key details of the expanded benefit from the U.S. Treasury Department. Specifically, the Child Tax Credit has been revised in the following ways:
- The credit amount has been increased. The American Rescue Plan increased the amount of the Child Tax Credit from $2,000 to $3,600 for children under age 6, and $3,000 for other children under age 18.
- The credit’s scope has been expanded. Children 17 years old and younger, as opposed to 16 years old and younger, will now be covered by the Child Tax Credit.
- Credit amounts will be made through advance payments during 2021. Individuals eligible for a 2021 Child Tax Credit will receive advance payments of the individual’s credit, which the IRS and the Bureau of the Fiscal Service will make through periodic payments from July 1 to December 31, 2021. This change will allow struggling families to receive financial assistance now, rather than waiting until the 2022 tax filing season to receive the Child Tax Credit benefit.
- The credit is now fully refundable. By making the Child Tax Credit fully refundable, low- income households will be entitled to receive the full credit benefit, as significantly expanded, and increased by the American Rescue Plan.
- The credit is now extended to Puerto Rico and the U.S. Territories. For the first time, low- income families residing in Puerto Rico and the U.S. Territories will receive this vital financial assistance to better support their children’s development and health and educational attainment.
To facilitate the disbursement of Child Tax Credit advance payments during 2021, the American Rescue Plan requires the IRS to establish an online portal for taxpayers to update relevant data for mid-year payment adjustments (for example, the birth of a child during 2021).
In addition to this online tool, the Treasury Department and the IRS will carry out a sweeping public awareness campaign parallel to its Economic Impact Payment campaign to reach all Americans who may be eligible for this financial assistance.
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