Getting the Child Tax Credit Right for Puerto Rico: The American Rescue Plan’s Permanent, Historic Changes to Tax Relief in Puerto Rico
By Gene Sperling, American Rescue Plan Coordinator and Senior Advisor to the President
A deeply troubling truth in the American tax system over the last 25 years is that the children of Puerto Rico were never given equal status when it came to the Child Tax Credit.
Since its passage in 1997, the Child Tax Credit was expanded and made gradually larger and more refundable for families with children in the 50 states and the District of Columbia. But it never reached the vast majority of Puerto Rico’s children – because Puerto Rico families were only eligible for the Child Tax Credit if they had three or more qualifying children. This limited eligibility meant less attention and focus and awareness even among families who were eligible.
The sad reality is that while well over 50% of Puerto Rico’s children were in poverty, only 10% of the commonwealth’s families with children were eligible for the Child Tax Credit.
That all changed with the passage of the American Rescue Plan. For the first time ever, this year, all families in Puerto Rico – regardless of the number of children in their family – are eligible for the Child Tax Credit on the same basis as families in the 50 states and the District of Columbia. The difference is extraordinary. This tax filing season, 97% of Puerto Rico’s families are eligible for the expanded credit.
Ensuring all families in Puerto Rico file to receive the expanded Child Tax Credit this filing season is especially critical because in addition to increasing the Child Tax Credit to $3,600 for children under 6 and $3,000 for older children for tax year 2021, the American Rescue Plan made the Child Tax Credit fully refundable for all children. That means that the families of nearly 27 million children nationwide – including roughly half of Black and Latino children – are receiving the full expanded Child Tax Credit, who would have previously received just a partial or no credit because they earned too little. And because Puerto Rico’s families were not able to receive monthly payments in 2021, those filing will receive the entire expanded credit as a lump sum, making filing this year all the more critical.
Perhaps what is most consequential and not fully understood is that the American Rescue Plan permanently ensures that, from now on, the children of Puerto Rico will be on equal footing with children elsewhere in the United States for the Child Tax Credit. While the Child Tax Credit in Puerto Rico will be more impactful with the President’s proposal to extend the expansion of the Child Tax Credit, and particularly full refundability, the principle of equal treatment is in law, forever, due to the American Rescue Plan.
This comes at a time when we have at long last ensured that workers in Puerto Rico will also be treated more fairly by the Earned Income Tax Credit (EITC). Before this year, Puerto Rico’s locally administered EITC, when it was available, had never received federal support – and as a result, the credit was significantly smaller than the federal EITC. While Puerto Rico workers will still claim their EITC through their commonwealth government, the American Rescue Plan is helping Puerto Rico fund a dramatic expansion of the credit. The American Rescue Plan is providing $600 million in annual federal dollars on top of $200 million in Puerto Rico tax dollars, allowing Puerto Rico to more than triple available EITC benefits for workers. This expansion increased the maximum EITC for a family with two children from $1,500 to $5,500 – bringing the credit broadly in line with the maximum benefit available to a similar family living elsewhere in the United States.
That’s why getting the word out in Puerto Rico about the importance of filing has been a top priority for the Government of Puerto Rico, major non-profit advocates, and those of us involved in the implementation of the American Rescue Plan. It is why the White House and the Treasury Department have worked with the Governor of Puerto Rico and Mayors and in constant partnership with key groups including the Youth Development Institute (IDJ), Espacios Abiertos, United Way of Puerto Rico, and the Hispanic Federation. And it is why we co-host a weekly call with UnidosUS that brings together government officials and non-profits and foundations from Washington D.C. to San Juan to coordinate outreach and work through barriers to getting wide sign up for the Child Tax Credit and the Earned Income Tax Credit.
The process hasn’t been perfect, but this working group of government officials and non-profits in Washington and Puerto Rico has stayed at it. The data we have so far shows dramatic improvement. We now expect ten times as many families with children to have filed for the Child Tax Credit this tax season as in previous years. This alone should have a major impact on lowering the child poverty rate in Puerto Rico.
That’s also why this week, First Lady Jill Biden, Education Secretary Miguel Cardona, House Chairwoman Nydia Velazquez, Deputy Secretary of the Treasury Wally Adeyemo, and I held an event along with the leading non-profits in Puerto Rico to do a final push for Puerto Rico families to file for the expanded Child Tax Credit and Earned Income Tax Credit benefits before the filing deadline.
And for families who do not file over the next week, we are working with Code for America to launch a simplified filing portal for families to claim the Child Tax Credit that will be available through the fall. The more successful we are in ensuring every eligible household in Puerto Rico gets the Child Tax Credit and the Earned Income Tax Credit, the more we meet the President’s goal to lift up every American, to ensure parents in Puerto Rico have, as the President says, “a little more breathing room” when raising their children, and the more we will significantly reduce the number of children living in poverty.