A bipartisan group of lawmakers is pushing a tax package that could expand the child tax credit as soon as this filing season.
Their bill — currently called the Tax Relief for American Families and Workers Act of 2024 — would increase access to the tax credit for lower-earning families that don’t have enough taxable income to fully capitalize on it under current rules. The House of Representatives passed the $78 billion proposal, which also includes tax benefits for businesses, on Wednesday in a 357-70 vote. It now heads to the Senate.
This wouldn't be the first time the child tax credit has been expanded.
In 2021, lawmakers upped the child tax credit to a maximum of $3,600 per child, increased the age limit and made it fully refundable, with half the sum available in advance monthly payments. But those changes were only for that tax year. According to the Center on Budget and Policy Priorities, the expiration of the expanded child tax credit was a major reason why the child poverty rate more than doubled from 2021 to 2022.
Ever since then, Democrats in the GOP-led House been pushing to revive it. This latest effort is an attempt to expand the child tax credit for the 2023 tax year (the one we just finished) and beyond to provide more much-needed relief for families; however, the proposal advanced by the House is significantly smaller than the 2021 expansion.
The change would allow families with lower incomes to access a larger amount of the credit. Right now, the standard child tax credit is a nonrefundable credit of $2,000 per child under age 17, and families are eligible for the full amount if they earn up to $200,000 ($400,000 if filing jointly).
There's also what's known as the additional child tax credit, which is meant to help families with insufficient tax liability to claim $2,000 per eligible child as a nonrefundable credit. When a tax credit is nonrefundable, that means it can only reduce your tax liability to $0 — you don't get what's left over.
With the additional credit, a taxpayer can get up to an inflation-adjusted amount ($1,600 per child in 2023) as a refundable credit. The refundable amount is currently capped at 15% of the family’s income above $2,500.
Proposed changes to the child tax credit in 2024
The proposed expansion of the child tax credit would make it so the cap on the refundable amount gets multiplied by the number of eligible children. In other words, it wouldn't be 15% of your income, it would be 15% of your income times the number of kids you have.
Lawmakers are calling this provision of the bill the “per-child calculation” change.
The bill would also increase the refundable maximum to $1,800 per child for the 2023 tax year, $1,900 for 2024 and $2,000 for 2025.
Together, the changes would put hundreds or even thousands of extra dollars back in some families' pockets. For example, a single filer with $14,000 of earned income and two eligible children would currently only be able to get $1,725 as a refundable credit. If the expansion becomes law, that would increase to $3,450.
During a House committee meeting last month, three Democrats voted against the bill, saying they want a larger expansion of the credit and fewer tax benefits for businesses. Even Democrats who voted in favor of the plan, like ranking member Rep. Richard Neal, D-Mass., seem to think it fell short. In a statement, Neal criticized his Republican colleagues for “refusing to expand the child tax credit to include our country’s poorest children.”
With the proposed expansion, families with little or no income would still be unable to access the full refundable benefit, if any of it. It would take $14,500 of earned income for a single-filing parent with one eligible child to get the $1,800 amount as a refundable credit. With less than $2,500 of income, you’d get nothing.
There's one last notable change in the current version of the bill: For the 2024 and 2025 tax years, taxpayers would be able to use their income from the previous tax year to calculate the refundable portion of the credit. That would help some families access the credit if their income is low in a tax year after a sizable drop from the year before, for example, after a job loss.
Don't wait to file taxes because of the 2024 child tax credit
At this point, it’s unclear if it will ultimately become law and if so in what form.
Sen. Ron Wyden, D-Ore., spent much of January expressing hope that the expanded child tax credit will be in effect for the 2024 tax season, which formally began this week. Per Politico, the IRS is urging people not to drag their feet in hopes that the expanded child tax credit will make it through Congress before they file; it says it can and will amend returns to reflect the updated benefits if it becomes law.
"Taxpayers should file when they’re ready to file," IRS Commissioner Danny Werfel told reporters Friday. "If there is a change to the law that means, for example, they would get an additional or an increased credit, we will handle that at the IRS."
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