The expansion of the Child Tax Credit (CTC) provided significant financial help to many families in 2021. While there has been discussion of extending the benefit, it is no longer set to be included in the Building Back Better Act (BBB) or other pending legislation.
For those who depended on the expansion, the failure to extend could come as a big financial blow. Rather than hoping for legislation to pass, households can use these tips and strategies to help manage the difficult situation:
1. Revisit your budget ASAP
If you become accustomed to having the extra cash for things like food, utilities and even rent, it may seem impossible to adjust.
One key to recovering is to revisit your budget as soon as possible. That could mean falling back on your old household budget, or even making additional adjustments like these:
- Find and cut non-essential expenses. Review bank and credit card statements to identify costs you can reduce or eliminate, like multiple streaming services or memberships you don’t use.
- Plan ahead. Gas prices are high, so try cutting down on errands like frequent trips to the grocery store. Plan to carpool or cut costs by alternating babysitting nights with a family member.
- Seek outside assistance. Schedule a free credit counseling session with a professional who can guide you through budget solutions and resources, like a debt management plan.
- Find ways to increase income. If your budget is already tight, consider taking on a side gig or enrolling in a job skills training program through Goodwill.
2. Prepare for (an unusual) tax season
For some parents, the CTC could impact your tax refund, whether you received the benefit or not.
Here are a few scenarios to be prepared for. Note that the IRS website is always the best resource for navigating tax issues, and free filing help is also available through the IRS’s VITA program.
Scenario 1: You haven’t received your full CTC benefit yet
For those who received advance payments, the amount you received was only half of the total benefit. Be sure to claim your remaining benefit when you file for 2021. Those who didn’t receive advance payments can qualify for a lump-sum payment by claiming the Child Tax Credit when they file.
Parents of children under 13 should also look into the Child and Dependent Care Credit, which could provide an additional credit for qualifying costs related to child care.
Scenario 2: You received an overpayment
If the IRS miscalculated your benefit — perhaps due to a change in your filing status during 2021 — you may need to repay the “excess.” That amount may be paid through a reduction of your federal tax refund. Those who need help with the cost may want to apply for a repayment plan or look into settlement options with the IRS.
Scenario 3: You haven’t filed your taxes in recent years
Not everyone is required to file taxes, but not filing could mean missing out on both stimulus payments and the Child Tax Credit. If you didn’t file for 2019 or 2020, use the IRS’s Non-Filer Sign-up tool to see if you qualify and set up payments.
3. Beware of CTC scams
Unfortunately, CTC benefits are a major target of scammers who impersonate government agencies in order to steal personal information and money. The IRS warns taxpayers to beware of red flags for these scams:
“The IRS doesn’t initiate contact by email, text messages, or social media channels to request personal or financial information… watch out for emails with attachments or links claiming to have special information about advance Child Tax Credit payments or refund.”
If you receive suspicious communication, reach out to the IRS directly through a verified website or phone number. You can also be proactive against scams by practicing good security habits, like using strong and unique passwords, and by reviewing your credit reports for unusual activity.