The US Congress had introduced child tax credit in order to provide subsidies to low and middle income group of families. Monthly data checks are being made since July which shows significant impact on the financial stability of the families covered.
The child tax credit is paid on monthly basis rather than a lump sum amount i.e, monthly checks upto $300 per child by the end of 2021 and the remaining amount is provided after filing taxes.
This relief fund was introduced as a one year plan which will support families till the end of 2021 and help make savings for child care. However the supporters of child tax credit have analysed the positive impact of this subsidy on many families.
Many democratic lawmakers including Bennet and DeLauro have been trying to make permanent expansion of child tax credit.
The proposal to expand child tax credit upto 2025 so that it would be available to almost every child in the US was not accepted by the majority of Democrats. In the end settlement have been made to expand the scheme for another year.
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CTC And Labor Supply Decisions
Change in the structure of child tax credit can effect the labour supply. Before the expanded CTC, participation bonus was included which reduced the marginal tax on low income households.
However, the participation bonus was eliminated which has lead to high marginal tax on low income households. So the proposed extension of CTC will lead to reduction in returns at least upto $2,000 per child due to removal of participation bonus.
Impact Of Child Tax Credit
Study conducted by various sources show that child care subsidies help in bringing positive impact on the lives of children. When evaluation of CTC is made, most studies exclude future benefits of the subsidy. Due to Covid-19, millions have families have been struggling with employment, child care and medical expenses.
Compared to previous years poverty rate has increased significantly. According to researchers from Columbia University, CTC would help reduce poverty by 45% with the majority of beneficiaries being Latino and Black children.
While some scholars argue that CTC can help reduce poverty by providing financial support to low income families, some are of the belief that it could disincentivize parental employment which in turn will curb social mobility.
Multiple surveys conducted suggest that CTC payments will act as a tool for eliminating poverty and increasing social stability in the long run. Child Tax Credit will allow families to not choose between a high paycheque and eligibility for subsidy
It is important to make the right choice for your financial needs and hence we are ready to answer your queries. Contact Professional Tax Preparing at +1 770-280-1082.