Uncle Sam and the Diaper Genie:
Expanded Child Tax Credit 2021

By May 5, 2021May 7th, 2021News

Diapers cost around $80 per month. Before the pandemic, 12 million Americans couldn’t afford them.The situation is worse now based on data from struggling diaper banks, dried up donation pools and sales, although stats are slow to keep pace. The Senate introduced a bipartisan bill in February called the “End Diaper Need Act,” which is self-explanatory but addresses an unanswered need hovering under the radar for decades. Imagine babies as far as a telescope can see running naked or swaddled in rags and T-shirts, left soiled until their makeshift Huggies sag at the knees.

Diapers are not covered by federal assistance programs. Per recent reporting in The Washington Post, “diaper need” provides a new barometer for U.S. poverty. Think of it: a kid without diapers can’t go to daycare or tag along to the grocery store; its mother can’t go to work; it becomes more susceptible to rash and infection. According to federal data, the poorest 20% of families spend 14% of their entire after-tax income on disposable diapers that wealthier people buy for half as much, because the latter have access to transportation where diapers are sold cheaper in bulk.

Diapers make the world go round, but they cost money.

Enter the US government, a different kind of diaper genie coming to the rescue in July. The American Rescue Plan’s expanded 2021 Child Tax Credit is designed to help alleviate “diaper need” and a long list of other essentials associated with child rearing.

After weeks of touch-and-go, IRS commissioner Charles Rettig announced last week that monthly aid money will be distributed to more than 30 million low- and middle-income qualifying families by direct deposit beginning in July. It’s a bit more complicated than changing a diaper, though, especially when some of the rules are unprecedented. Here are some basics to help guide you:

  • The 2021 Child Tax Credit (CTC) is part of the $1.9 trillion American Rescue Plan and is temporary for one year, so far. The White House is pushing for its extension through 2025, but as yet no guarantees.
  • CTC has nothing to do with stimulus checks.
  • CTC is not taxable.
  • Even if you don’t have earned income and don’t usually file taxes, you still need to file a 2020 tax return by May 17, 2021, so the IRS knows who you are and what to pay you. (The IRS has a number of free programs to help Americans complete and file 2020 tax returns.) If you only have data for  2019, that will work; or you can choose which year qualifies you for more.
  • 2021 CTC is different because the money will be paid half in advance from July-December 2021 (6 monthly deposits) and half at tax time in 2022.
  • How much you receive depends on the number and ages of qualifying children, as follows:
    • Children, including newborns, under age 5 on the last day of 2021 = $300 advance per month per child from July-December 2021 plus a matching lump sum for an equal amount when you file taxes in 2022: That’s $1,800 in advance deposits this year and $1,800 lump sum in 2022 = total $3,600.
    • Children ages 6-17 = $250 advance per month per child from July-December 2021 plus an equal lump sum at tax time in April 2022: That’s $1,500 in advance direct deposits this year and $1,500 lump sum in 2022 = total $3,000.
    • A child age 18 = one-time payment of $500
    • Children ages 19-24 = one-time payment of $500 provided your child is enrolled full time in college.
  • AGI (adjusted gross income) cutoffs are as follows:
    • $75,000/yr. or less for a single parent filing separately.
    • $150,000/yr. or less for a couple filing jointly.
    • $112,500/yr. or less for head of household filing separately.
  • Payment amount phases out at $50 per $1,000 in excess of the above thresholds so, say, you earn $80,000 filing separately you’ll be docked $250 ($50 x 5 thousand).
  • Payments are designed for automatic deposit based on filing for 2019-2020 by May 17, 2021.
  • You can opt out of monthly advance payments from July-December 2021 and receive the entire lump sum as a refundable credit at tax time in 2022.
  • New legislation makes this tax break fully refundable instead of canceling it out when your tax bill hits $0. In other words, the refund allows people to pocket the extra.
  • If you can access a computer, google Kiplinger’s 2021 Child Tax Credit Calculator for more information.

– Cynthia