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Several recent analyses have found that the American Rescue Plan, passed by Democrats in Congress and signed into law by President Joe Biden in March, could cut the child poverty rate by half in the United States.
An expanded and improved child tax credit is an important part of the rescue plan. In Maine, nearly every child in the state qualifies for the credit, which is predicted to lift at least 10,000 Maine children out of poverty.
To be effective, however, parents must know about and claim the credit. An essential part of doing so is filing a 2020 federal income tax return, which is due by May 17. Because of the pandemic, the federal and state tax filing deadlines were extended beyond the traditional April 15. Both are now due by Monday.
“Families must file a 2020 tax return, or the IRS will not have the information it needs to deliver this child tax credit,” Elaine Maag, principal research associate at the Urban-Brookings Tax Policy Center told CNBC last month.
The rescue bill increases the child tax credit for 2021 from $2,000 to $3,000 for children over 6 and extends the credit until a child’s 18th birthday. For children under 6, the credit was raised to $3,600. The credit phases out for couples with combined incomes over $150,000.
The credit is a direct reduction in a family’s tax bill. If a family owes $8,000 in taxes, for example, and they have two children between 6 and 17, their bill will now be $2,000. The expanded credit is also now fully refundable, meaning the poorest families can get money back from the IRS, money that can be spent caring for their children and themselves.
Perhaps most important to low-income parents and those who have struggled with employment and housing and other expenses during the pandemic, the credit will now be paid in monthly installments, rather than a lump sum when federal income tax forms are filed.
These monthly payments are slated to begin in July, IRS Commissioner Charles Rettig told the U.S. Senate Finance Committee last month. They will go through December and families can claim the remainder of the credit when they file their 2021 taxes.
In Maine, nearly 90 percent of the state’s children — or 223,800 children — are eligible for the credit, more than half of them in the 2nd Congressional District. The average benefit in the 2nd District is projected to be $2,700; the projection is $2,500 in the 1st District. The benefits will be higher for families with children who are below the poverty line, which in 2021 is $26,500 for a family of four. The expanded credit is projected to lift 5,600 children in Maine out of deep poverty, according to congressional data. Deep poverty is defined as households with incomes that are below 50 percent of the poverty line.
“Every family deserves the chance to build a better life for their children, and the advance monthly payments of the Child Tax Credit help set our kids up for success,” 1st District Rep. Chellie Pingress said in a press release this week. “The life-changing opportunities made possible by the Child Tax Credit are possible if you file your tax return before May 17 even if you don’t normally file.”
Pingree, a Democrat, voted for the American Rescue Plan. Rep. Jared Golden, who represents the 2nd District, was the only Democrat in Congress to vote against final passage of the plan.
The child tax credit will make a positive difference in the lives of thousands of Maine families. Filing tax forms by Monday will help ensure eligible families get this needed credit.