DRIFTLESS - On January 24 the IRS officially began accepting prepared tax returns, signaling the kick off of the official season. One of the largest changes for folks with kids during tax season has been the changes to the expanded child care tax credit. 

For the last six months, the United States issued payments to families across the nation to help them with the ever rising costs of raising children. Although this is radical and at times controversial in America, it is not a new idea across the world with many wealthy nations having done it for years. 

For Americans, the ball began rolling in spring of last year when, as part of the American Rescue Plan, lawmakers made changes to the previously existing benefit that parents and guardians have likely utilized throughout the years. 

The three major changes included Congress choosing to disperse half of the benefits in monthly payments from July to December, instead of the traditional lump sum at tax time that families received in the past. Additionally the benefits were increased from $2,000 per child per year to a maximum of $3,600 per child five or younger and $3,000 for kids six to 17. This translated to payments of $300 or $250 per child for those six months and the rest at tax time. The third and perhaps most pinnacle of the changes was the hole closed by Congress that prevented roughly one third of the nation’s children, and half of all Black and Hispanic children from fully benefiting because their families earned too little income. 

According to an article by NPR, the expansion reached 61.2 million children across more than 36 million households in December. The article goes on to state “The Tax Policy Center estimates, that by the end of the tax season, families will have received an average of $4,380 from the 2021 version of the child tax credit- compared to the $2,310 they got under the previous version.” It is also noted that “the payments cut child poverty by roughly 30 percent.” 

According to the Center on Budget and Policy Priorities, the money was spent on necessities for nine out of 10 families. 

“Some 91 percent of families with low incomes (less than $35,000) are using their Monthly Child Tax Credit payments for the most basic household expenses-food, clothing, shelter, and utilities. Many of these households are receiving the full Child Tax Credit for the first time thanks to the American Rescue Plan’s credit expansion.” The article stated. The survey provided, showed that 91 percent of respondents reported spending it on food, utilities, rent or mortgage, clothing and educational costs. With four percent reporting using it for recreational goods, eight percent reporting putting it in savings, one percent reporting giving it to charity or family, 16 percent noting they used it for child care, and 17 percent reporting using it for paying down debt. 

Locally, it seems to be a mixed bag for people’s feelings on how the tax credit has been dispersed and used. 

“Having the extra money coming in each month helped to take the stress off of paying bills,” reported one individual who has a single child. “I am self employed so ultimately I would prefer the traditional lump sum once a year to help cover what I owe in taxes but my pandemic induced work shortages really gave me cause to rely on the monthly payments. I didn’t realize it was ending (my fault for not keeping up with the news I suppose) and it threw all of my January budget into a tailspin to be quite honest. I think if used properly like I’m trying to it could be life changing. There were months I didn’t know what I was going to do without it, but I want to go back to ‘normal’ and not have to rely on it monthly.” 

Another individual with two children and changes to their personal income made the decision at the beginning of the year to opt out of the monthly payments and chose instead to just receive their payment in a lump sum. 

“My family opted out because one of us also received a hefty sum of unemployment and we were worried that we were going to owe. I will be curious to see how it all shakes out. We didn’t need the money in a monthly payment at the time and personally we prefer a lump sum when possible. I feel like we would have spent it more on smaller purchases each month where if we received it all in one large sum we could buy a vehicle or other larger purchase we might need.” 

The ebb and flow of tax needs and other unexpected things throughout the year has also led others to question what their returns or tax preparations will look like with this credit received but changes made as another unmarried individual shares. 

“We usually switch who claims the children each year based on what happened throughout the year with our income. This year we had a lot of changes that will impact our taxes in addition to swapping who claims them. So for us that means the person who received the advanced credit will not be the person claiming the kids this year and we’re really curious about how that will look for us at the end of filing. We were fortunate enough to be able to tuck that money way for the kids in a savings account but it will be disappointing if because of our unmarried status and other tax needs we’d have to pay it back.” 

Repayment has been a concern vocalized by many leading up to the issuing of the payments. Luckily for many tax filing individuals with low enough incomes, they will not be on the hook for paying back the money.

According to the IRS, when the plan was put into place Congress enacted a repayment protection for families with lower incomes. This translates to a 2021 income of less than $40,000 for single filers, $60,000 for married couples, and $50,000 for those filing as Head of Household; you are not required to pay anything back. The IRS notes that the repayment protection amount is phased out or reduced as your modified AGI exceeds the amount above. “Your repayment protection amount will equal $0 and your repayment protection will not be reduced when your modified AGI is at or above the higher amount based on the filing status of your 2021 tax return: $80,000 if you’re a single filer or married and filing a separate return, $100,000 if filing as head of household, or $120,000 if married or filing as a qualified widow or widower.” The IRS also provides the example, “You filed a joint return with your spouse for the tax year 2020 and properly claimed the Child Tax Credit for three qualifying children. The IRS estimated your total Child Tax Credit payment amount based on these qualifying children. However, when you file your 2021 joint tax return with a modified AGI of $75,000 you claim the Child Tax Credit for only one qualifying child- and therefore have two excess qualifying children, your modified AGI of $75,000 exceeds your applicable $60,000 modified AGI threshold by 25 percent. Your potential full repayment protection amount of $4,000 is reduced by 25 percent to $3,000.”