Chairman Neal Gets Puerto Rico Tax Credits Over the Finish Line

With the passage of the American Rescue Plan, Ways and Means Committee Chairman Richard E. Neal (D-MA) finished his long fight for equitable treatment for Puerto Rico in the federal Child Tax Credit and Earned Income Tax Credit.

Chairman Neal has worked toward this goal for years, and the passage of the American Rescue Plan, is poised to reduce child poverty in Puerto Rico more effectively any other federal proposal in history.

At close to 60%, Puerto Rico’s level of child poverty is the highest – by far – in the country.  No state has anywhere close to Puerto Rico’s level.  In 2019, the national child poverty rate was 17%.  Mississippi has the highest rate among the states with 28%.  (2019 data is available here.)

A significant reason behind Puerto Rico’s staggeringly high level of child poverty is that the U.S. territory had never been integrated into some of the nation’s most effective tools to fight poverty: the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).

Before passage of the American Rescue Plan, Puerto Rico received no federal funding for the EITC, and CTC coverage only kicked in with a family’s third-born child.

The new EITC law will provide the Puerto Rican government with a grant worth triple the value of its local EITC, which is currently approximately $200 million.  Under current law, the U.S. would provide Puerto Rico with $600 million this year, bringing the value of the territory’s EITC to $800 million.

The expanded EITC is substantial, and it is expected to make a meaningful difference in the lives of low and middle-income workers.  If Puerto Rico were a state, the federal EITC payments to Puerto Rican families would be even larger.

Under the terms of the new CTC law, Puerto Rican families will receive $3,600 for each child in the family age six and under, and $3,000 for those ages 6 to 17 in 2021.

When the CTC returns to its former level of $2,000 per child in 2022, all children in Puerto Rico will be covered.

Democrats have already begun to talk about making the generous 2021 CTC expansion permanent.  Puerto Rico’s permanent integration into the federal program increases the chances for the U.S. territory to also be included in future nationwide U.S. expansions.  Under a block grant structure – such as Medicaid – it is more difficult for U.S. territories to receive nationwide increases.

Previous rules for Puerto Rico

Before the American Rescue Plan, the Child Tax Credit applied only to families in Puerto Rico with three or more qualifying children. It is worth noting that the average family size in Puerto Rico is under 3 people, including adults. This rule, therefore, has meant that most families in Puerto Rico were ineligible for this tax credit, regardless of their income or the amount of taxes they pay.

The American Rescue Plan does away with this requirement permanently, beginning with the newly expanded 2021 CTC.

Chairman Neal

Neal proposed permanent matching funds for the EITC and CTC in the Economic Mobility Act in 2019. In 2020 he introduced another expansion of the Child Tax Credit and Earned Income Tax Credit for Puerto Rico in the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which passed the House but died in the Senate.

These bills did not become law. However, the American Rescue Plan was accepted by both chambers of Congress and signed into law by President Biden earlier this month.

Puerto Rico Governor Pedro Pierluisi thanked Chairman Neal and House Leadership for this bill in a press release.  “I thank House Speaker Nancy Pelosi, Majority Leader Hoyer, and Ways and Means Committee Chairman Richard Neal, for the leadership’s commitment to Puerto Rico by including full extension of the Child Tax Credit in the Budget Reconciliation bill,” he said. “Make no mistake, this is a historic breakthrough in our fight for equal treatment as American citizens. The full Child Tax Credit will encourage economic growth, support Puerto Rican families, and strengthen our communities.”

He continued, “We are one step closer to achieving equality for our people. Full extension of the Child Tax Credit to Puerto Rican families and inclusion of EITC program has been a priority for the Government of Puerto Rico for many years, and during her tenure in Congress, our Resident Commissioner Jenniffer González Colón has been a champion of ensuring that American citizens on the island have access to these programs. We estimate that thousands in Puerto Rico would benefit from these credits. It is certainly a game-changer for our families and for our economy,”

Neal represents the largest Puerto Rican population in Massachusetts.

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