The Biden administration has unrolled a number of tax breaks and economic stimulus programs in its first few months, and these plans and their potential ramifications have been the subject of some discussion among both financial pundits and investors. One of the more deeply discussed issues is the ongoing series of child care tax credits and the impact they may have on the economy. As with many things which are widely discussed, these tax credits are also widely misunderstood, so let’s start with a brief rundown of what the plan is right now:
- The major component of the bill as it stands is an expansion of the child tax credit into the 2021 tax year. In its current form, this will provide parents with a $3,000 credit for every child aged 6 to 17 and $3,600 for every child under age 6. This is a substantial increase from the previous plan’s $2,000 per child.
- Eligibility will be income-based, and the requirements are laid out by the IRS.
- The credit will be fully refundable, so families that missed out on it last time will be able to claim it on their taxes for 2021.
- Individuals earning up to $75,000 per year, heads of household earning up to $112,500 per year, or couples filing jointly earning up to $150,000 per year would be eligible to receive the full benefit.
- The credit will roll out in a series of advance payments between July and December 2021. At the time of this writing it is unclear as to the form this will take.
With those facts in mind, let’s return to our central question: will the recurring child care tax credit benefit the economy. The answer is a complex one, depending greatly on what one considers a benefit to the economy and the timeline in question. In the near term, the credit will undoubtedly provide some economic relief to families feeling the strain of the pandemic and its resulting financial woes. With prices on essential groceries and other home supplies increasing, any extra income or savings will be welcome by much of America. However, there are growing concerns about this tax credit in the context of Biden’s broader, multi-trillion-dollar spending plan. While well-intentioned and full of good ideas about infrastructure development and economic growth, the vast costs attached have raised questions about long-term inflation and a negative impact on the value of the dollar. Officials within the administration–Treasury Secretary Yellen chief among them–have been quick to downplay inflation fears, noting the timed rollout of Biden’s various plans and the expected economic growth as an offset to any inflation which may occur.
What will inevitably come of all this remains to be seen, but there are things that concerned families and savvy investors can do in the meantime. First and foremost is having a plan of your own. Whether you’re a family who will benefit directly from the child care tax credit or an investor testing the financial waters, have a plan for what you’ll do with your extra money or your current investments. Spending and investing wisely are always a shrewd move, particularly under our current dynamic circumstances. Towards that end, engaging professional guidance in navigating rapidly changing conditions and illuminating the blind spots can go a long way towards building your financial success. At OmniStar Financial, we’re here to help our clients make the best decisions and adapt to evolving situations. If you have any questions about how the child care tax credit, or any other stimulus program, is likely to affect you get in touch today.