In the wake of COVID-19, relief was provided by the U.S. government through a panopy of reliefs to families and individuals. One such measure was increasing the Child Tax Credit. A recent IRS Notice pointed out a problem involving misinformation about just how much could be deducted, with some saying $32,000 could be deducted.
As the IRS points out, this news about was the Child Tax Credit was misinformation. Here’s what you need to know.
Understand the Child Tax Credit during COVID-19
The Child Tax Credit, an income tax benefit for families with qualifying children, was substantially increased under the American Rescue Plan Act of 2021. The following are some important changes:
- Increased maximum credit amounts: The amount of credit awarded was doubled from $2,000 given for each child to $3,000 for each child between the ages of 6 and 17, and to $3,600 for each child below.
- Advance payments: Qualifying families received advance payments each month from July through December, totaling half of the full credit.
- Refundability: The credit became fully refundable, to the effect that families could receive it even when they had no federal income tax liability.
Misinformative claims of $32,000 deductions
Coupled with the clarity of the ARPA, there began to spread fake news that an individual could deduct up to $32,000 under the Child Tax Credit during a pandemic. This figure is incorrect and greatly exceeds the actual maximum credit per allowable dependent.
IRS notice on the false claims
On account of these false claims, the IRS issued a notice to clarify the correct details about this Child Tax Credit and address misinformation. Key points emphasized in the notice include:
- Maximum correct credit: For tax year 2021, the maximum child tax credit was $3,600 for children under 6 and $3,000 for children ages 6-17.
- Not eligible for deductions: The Child Tax Credit is a credit against tax liability and not a deduction from taxable income. So any claim made for the $32,000 deduction is utterly false.
- Legal consequences: Any false information concerning tax credits and deductions will result in penalties or even legal action.
Who might have been affected?
Several groups could have become confused or misinformed about the truth behind the Child Tax Credit.
- Taxpayers: Individuals and families seeking reprieve in the form of finances due to the pandemic might have been left confused and even misguided, jeopardizing their tax filing.
- Tax Preparers: Professionals charged with the duty of assisting in tax filings may have had to endure clients who were misinformed about the claims they were entitled to, consequently requiring more work to correct the misconception.
- Policy Makers: Government officials and legislators might have been put under much more pressure to clarify the confusion and see to it that the right information was passed on.
Actual benefits of the Child Tax Credit
Despite the misinformation, the enhanced Child Tax Credit provided huge relief to millions of families during the pandemic:
- Financial relief: Advanced increased amounts and advance payments worked to help relieve some of the financial stress on families struggling with the economic impact of COVID-19.
- Poverty reduction: Several studies have shown that improved credit significantly reduced the poverty rates among children in the United States.
- Economic stimulus: By giving families more money in their pockets, the credit helped in raising spending and stimulating the economy.
