Among the many tax changes currently being considered by the Biden administration is an expanded child tax credit that could provide significant financial relief to working families with young children. If passed, this credit will have a substantial impact on the financial lives of millions of families and provide much-needed assistance for parents struggling to pay for child care.
Under the proposal, the US child tax credit would increase from the current $2,000 to $3,000. Children under 6 would merit a special credit of up to $3,600 apiece, reflecting the higher costs of care and essential needs for younger children.
Parents would also be able to claim their children on their taxes for an extra year under Biden’s proposed changes. Currently, children can be claimed as dependents until they are 16. The new rules would raise the age to 17, allowing parents to claim one additional $3,000 credit.
Full eligibility for the expanded tax credit would apply for families making up to $125,000 per year. The credit then phases out at higher income levels, with families making more than $400,000 per year becoming fully ineligible. As a result, almost all low-income, working class and middle class families would be eligible for the expanded credit under the Biden administration’s plan.
One of the most important aspects of the proposed change is the administration’s plan to make the child tax credit fully refundable for the first year. This would lead to larger tax refunds for low-income families that normally don’t receive the full benefits of the tax credit. According to estimates produced by the administration, up to 27 million children live in households that would see a larger refund under a fully refundable credit. This larger refund for the lowest income households would also act as an additional stimulus to help the country recover from the COVID-19 pandemic.
In conjunction with the enlarged tax credit, the Biden administration also plans to expand assistance for child care. $15 billion in spending has been proposed for the Child Care and Development Block Grant program, a program which provides direct child care subsidies for low-income families with children age 12 and under. An additional $25 billion in emergency funding would be allocated to child care providers to prevent closures and ensure parents have easy access to child care facilities.