Without the passage of the Build Back Better act, the enhanced child tax credit (CTC) reverts to what it was pre-2021: up to $2,000 per eligible child under 17, in the form of an annual tax credit.
There are no more advance monthly payments, 17-year-olds no longer qualify for the credit and parents or guardians will now need to file a tax return to receive the credit next tax season. It will also be worth significantly less — up to $2,000, compared to up to $3,000 to $3,600 in 2021 — and is no longer fully refundable.
Around 35 million families have lost the monthly payments, the last of which were sent in December. And millions no longer qualify for the credit at all.
The credit was enhanced as part of the Democrats' American Rescue Plan, signed into law by President Joe Biden in March 2021. A one-year extension of the enhanced credit failed due to opposition to Build Back Better from Sen. Joe Manchin, D-W.V. Democrats need all 50 senators on board to pass the legislation.
Studies found that after the monthly CTC payments started being distributed, child poverty and child hunger fell significantly throughout the country. Without the payments, experts fear that the trend will reverse, especially because the families who arguably need the money the most — those with the lowest incomes — will no longer qualify for the credit at all because they do not meet the minimum earned income, $2,500, necessary.
"If the expansions end in 2021, this historic progress would be reversed, driving child poverty up substantially," reads a recent report from the Center on Budget and Policy Priorities.
It's possible that Congress could pass Build Back Better or a standalone bill which retroactively enhances the credit for all of 2022, or creates a structure similar to 2021, when the monthly payments starting going out mid-year, says Jorge Castro, a partner at the Washington D.C.-based Miller & Chevalier law firm and a former Democratic staffer on the Ways & Means committee.
To pass anything, though, Democrats will have to compromise to get all senators in agreement. "There's just the reality that you need to get to 50 votes," Castro says.
It is also easier to transmit the payments as the IRS already set up the infrastructure for the 2021 payments, Castro, who served as Counselor to the IRS Commissioner, adds.
But any sort of additional legislative requirements — like a work requirement or income cap, as floated by Manchin — would delay the payments further, because the IRS would need to incorporate them into its payment system.
Castro also says that, typically, the later it gets into the year, the less likely Congress is to pass legislation that takes place retroactively.
The current spike in Covid-19 cases across the country could cause Congress to rethink its priorities once both houses return to session, Castro says.
"If you significantly dial back child tax credit relief, is this the right time?" he says. "That's a question that has to be asked."