Child Tax Credit Proves to be Advantageous for American Muslims

By: Rafael Sanga, Ezgi Koc, Aaliyah Khwaja, MPAC Policy Interns

The Child Tax Credit, a long-standing tax benefit given to parents, was temporarily expanded by the Biden Administration as a part of the American Rescue Plan, a facet of the larger $1.9 trillion COVID Relief Package passed by Congress in March. The Child Tax Credit is unique in its ability to ease the burden on working-class families with a high cost of living due to having children. The expansion of the credit is by no means an all-encompassing solution to child poverty, however, it takes meaningful steps towards mitigating some of the economic burdens created by the pandemic. Experts predict that this initiative will cut child poverty by nearly a half, lowering financial anxiety for many American families. The rollout of this act sets a milestone in social policy and reinforces the debate of permanent subsidies as a component of the American economic safety net. According to the IRS, the payment will be sent out to 39 million families and 65 million children; however, general misconceptions regarding the monthly tax credit remain for many Americans.

Most American families qualify for some amount of credit to be received. Married couples with children who file joint taxes and have an adjusted gross income of less than $150,000 or individuals with an adjusted gross income of $75,000 qualify for full credit. The tax credit stops at married couples filing jointly earning $170,000 and taxpayers earning $95,000. Despite this, taxpayers earning more than the cutoff amounts are still eligible for the regular child tax credit: $2,000 per child under 17 for families making less than $200,000 annually or $400,000 specifically for married couples. As it stands, the credit will return to the regular rate next year. However, the Biden Administration has expressed a strong interest in making this expansion a permanent part of the Child Tax Credit.

If eligible parents filed taxes for 2020, they will automatically receive payment from the IRS. Payments will be dispensed via direct deposit or via mailed checks in the absence of available banking information. Monthly payments began on Thursday, July 15, and will continue through December 15. The remainder of the tax credit will be paid out when the parent files their taxes for 2021. Even if a parent did not make enough income to file taxes in 2020 they are still eligible for the credit. To receive the credit they would only need to use the Non-Filer tool on the IRS website. Families can also use the Child Tax Credit Update Portal on the IRS website to adjust their bank account information or opt-out of the monthly payments. If a family decides to opt-out, they would receive the full credit as a lump sum when they file their taxes for 2021. In order to receive the credit as a lump sum, families must use the portal to unenroll from the program by August 2, 2021. Opting out of the monthly payments can be beneficial for parents who received the Child Tax Credit on their 2020 tax return but will not be able to do so for 2021. Since this credit applies to the 2021 calendar year, a parent who received the credit but is ineligible when they file for 2021 would be responsible for returning the money they received. If they end up qualifying for the credit when filing taxes for 2021, then they would still be able to claim the full amount they missed in monthly payments on their 2021 taxes.

Among the many benefits the Child Tax Credit brings, many Muslim families around the nation will receive financial support at a time that income might be difficult to manage, not to mention balancing family funds for sadaqah and zakat. According to the Pew Research Center, Muslims are more likely than the average public in America to be underemployed: there are higher chances of financial struggle in Muslim American families, 17 percent more than the general population. Muslim families in America are more likely to have an average annual household income of $30,000 or less, and these tax credit deposits are an opportunity to lift any financial burdens, making it important for eligible families to understand this process in order to receive their payments. Around half the Muslim population in America has minor children, meaning that around 215,000 Muslim families would be receiving the tax credit payments this year. Muslim households have more children than the national average, paired with a higher chance of unemployment, so it is pertinent for families in our community to ensure they are receiving the compensation and assistance they deserve for all their children.

This expanded tax credit is the first big step towards rebuilding communities fractured by poverty. Roughly 39 million households in the U.S. will automatically receive the credit which means that if you have filed taxes, you may be eligible. The Child Tax Credit will be a huge benefit for parents in continuing to nurture their children, especially with uncertainties of income and employment. On average, the American Muslim community has more children per household making these payments significant in easing financial worries. Additional costs such as groceries, school supplies, and the cost of raising a family will be less of a financial burden on families with the expanded credit.

As Child Tax Credit payments begin to be delivered to households across the country, for many this spells relief in the wake of the pandemic that has left households stretched thin. With the suggestion by Treasury Secretary, Janet Yellen, that the child tax credit becomes permanent, we anticipate that the rollout of this credit will continue the conversation surrounding further government subsidies.

The Muslim Public Affairs Council improves public understanding and policies that impact American Muslims by engaging our government, media and communities.