- The American Rescue Plan raised the maximum value of the child tax credit to $3,000 or $3,600 per child (depending on age) in 2021. It will fall to $2,000 next year absent congressional intervention.
- The value would be further reduced to $1,000 starting in 2026 due to a provision of the 2017 tax law.
- Democrats had hoped to pass the Build Back Better Act by the end of the year; that no longer seems likely. The measure would extend this year's enhanced tax credit through 2022.
The enhanced child tax credit may expire in 2022, yielding a smaller financial benefit for parents. But that haircut may not be the last — the credit's value is scheduled to fall further in a few years' time.
Democrats are still trying to marshal 50 votes in the Senate for President Joe Biden's social policy and climate agenda, which would extend a temporary increase to the child tax credit for another year.
The American Rescue Plan, a pandemic-relief law, raised the credit's maximum value to $3,000 or $3,600 per child (depending on their age), from $2,000, in 2021. It also converted the tax break into a monthly income stream families started getting in July.
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The credit will revert to its $2,000 value next year if Congress doesn't intervene. It's poised to fall further starting in 2026, when the tax break would decline to $1,000 per child due to "sunset" provisions in a 2017 tax law passed by then Republican-controlled Congress.
Of course, Congress won't necessarily let the tax credit revert to that $1,000 value.
"There's a long history of the child tax credit being expanded temporarily, and when the deadline hits it gets extended again," Elaine Maag, a principal research associate at the Urban-Brookings Tax Policy Center, has told CNBC.
If existing law does expire, low-income households would bear the brunt of the impact, while middle and high earners would generally see limited to no impact, said Maag, who specializes in income-support programs for low-earning families.
The Build Back Better Act, which House Democrats passed in November, would extend the tax credit's monthly income stream for parents whose income is below $75,000 (single) or $150,000 (married) a year.
It would also make the credit fully refundable on a permanent basis — a particular benefit for low earners, who would get the full value of the credit regardless of their income or tax liability. Prior to the pandemic relief law, this wasn't the case, and nearly all the credit's benefits went to middle-earning households, Maag said. (The highest earners weren't eligible.)
Democrats had hoped to send the legislation to Biden's desk by year-end. The bill has stalled in the Senate, where Joe Manchin, a conservative Democrat from West Virginia, remains a holdout on the $1.75 trillion proposal. The party needs all 50 Democrat votes in the Senate due to unified Republican opposition.
An earlier version of Democrats' legislation, originally pegged at $3.5 trillion, would have extended the enhanced child tax credit value through 2025 instead of 2022. The party scaled back the measure after cost objections from Manchin and Sen. Kyrsten Sinema, D-Ariz.