Taxes 2022: What families should know about the child tax credit

Urban-Brookings Tax Policy Center Senior Fellow at the Urban Institute Elaine Maag joins Yahoo Finance Live to break down what families need to know about changes to the child tax credit.

- Welcome back to "Yahoo Finance Live." President Joe Biden is urging lawmakers to pass an extension of the 2021 enhanced child tax credit. Our next guest is here to explain what that means and the next steps families can take right now as part of our "Taxes Made Simple" series, presented by Tax Act. Joining us to discuss is senior fellow at the Urban Institute, Elaine Maag. Elaine, thanks so much for jumping on the show this afternoon. There were three changes to how the child tax credit was calculated last year. Explain to us what those were.

ELAINE MAAG: The first thing that happened is, rather than being a $2,000 per child credit, it's now a credit worth up to $3,000 for children ages 6 to 17 and $3,600 for children under six. The second thing-- and this is the most important for low-income families-- is the credit was made fully refundable. In the past, you-- the credit phased in as earnings increased, and then hit a cap. But now, the full amount of the credit is available to even the lowest income families.

The third thing is that we included 17-year-old children for the first time. Before this year-- before 2021, only 16-year-olds could receive the credit. That was the highest age. The other thing that happened is we also delivered half of the credit in advance of filing your tax return. So almost all families with children started getting payments in July, and they received a monthly payment from July to December.

- With that said, Elaine, I wonder, you know, a lot of people aren't necessarily filing their taxes early. What are you advising clients, what are you telling people to keep in mind as they look ahead to filing on the back of this?

ELAINE MAAG: So for families with children, if you received advance payments, you still have half of your credit to claim because, at most, you received half the credit. So you want to get your return in line and start getting the process started. For families who have children at home who did not receive the credit, you're eligible for the full credit. And you'll get that by claiming it on your tax return.

- You know, we're talking about just how to address the tax returns, but let's talk about the bigger picture of the significance of the child tax credit. I mean, the idea, I guess, from the Biden administration is that this would help families still reeling from the pandemic. How have you seen the economic impacts of this tax credit in the aggregate on the health of the American household?

ELAINE MAAG: So in a typical year, roughly 1 in 7 children lives in poverty. And we know that's bad for children, for a variety of reasons. When the credits start going-- started going out, poverty was reduced for families with children by about 40%. But more than that, we saw immediate effects. So we saw food insecurity drop by about 25%. There are several surveys out there that asked people what they used the credit for, and it was for food, utilities, and basic items, in many cases. Families were also able to start paying down debt. So those payments were important for financial stability when they were being delivered, but also getting caught up from being behind.

- Elaine, it's good to have you on the show today. Really appreciate the time. Elaine Maag, Urban-Brookings Tax Policy Center senior fellow at the Urban Institute.


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