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House approves expansion for the Child Tax Credit. Here are the details.

Writer's picture: Jazmin CintoraJazmin Cintora

The Child Tax Credit (CTC) is undergoing potential expansion as the House recently approved a bill to enhance this crucial credit for parents. The bill, titled the Tax Relief for American Families and Workers Act of 2024, secured bipartisan support in the House and is now awaiting consideration in the Senate.


The initiative to revamp the Child Tax Credit comes after more than two years since the expiration of its expanded version. Advocates and policymakers have been urging for its reinforcement, highlighting the evidence that the pandemic-era expansion significantly reduced child poverty rates.

 

Child Tax Credit Details

The proposed expansion of the Child Tax Credit aims to broaden its accessibility to more families. One significant change includes allowing taxpayers to utilize income from the current or previous year for calculating the credit, which is particularly beneficial if their income decreases, potentially disqualifying them from the tax credit.

 

Moreover, the bill addresses an existing limitation affecting low-income families by adjusting the calculation method. This alteration ensures that families with multiple children and low incomes can receive a more substantial CTC.

 

Revised Child Tax Credit Amount

The House bill's CTC expansion would make it easier for more families to qualify for the Child Tax Credit. 


That's because the original CTC requires a parent to have at least $2,500 in annual income, which means that a family with little or no income may not qualify for the CTC. 

Under the proposed changes, taxpayers could use their current or prior year income to calculate the CTC, which is helpful if their income drops and they can't qualify for the tax credit. This would go into effect with the 2024 tax year. 


The new law would also fix an issue limiting the CTC for some poor families: The current CTC provides no credit for a family's first $2,500 income. The CTC is based on multiplying a parent's income by 15% for earnings above that amount. The new calculation would multiply the parent's income by 15% and the family's number of children. 

 

The proposed legislation includes provisions for annual adjustments for inflation in 2024 and 2025, offering further assistance to eligible families.


That's an important change because it means families with two or more children and low incomes can qualify for a bigger CTC. Take the example of a single parent with two children who earns $13,000 annually, as outlined by the CBPP.

The current CTC limits their qualifying earnings to $10,500 because their first $2,500 of income isn't counted. Multiply that $10,500 by 15%, and the parent's maximum CTC is a credit of $1,575. 


Under the proposed changes, the parent could receive $1,575 per child because of the tweak to add the family's number of children to the calculation. The parent's CTC would double to $3,150 for each tax year.

 

Eligibility Criteria and Beneficiaries

Children under 17 with a Social Security number are eligible for the CTC, provided they meet IRS criteria regarding residency and dependency.


Parents can claim the CTC for each qualifying child if they have lived with them for more than half the year, and it can be claimed on their tax return as a dependent. The credit can also be claimed by foster parents and other relatives, such as grandparents or stepparents, as long as the child meets the IRS' eligibility requirements. 


The Center on Budget and Policy Priorities, which supports widening access to the CTC, estimates that 16 million children from poor households would benefit in the first year after expanding the credit. About 500,000 of those kids are in the families of U.S. veterans and active-duty service members, according to the left-leaning think tank.

The CTC has income limits; high-income households may have their credit amount reduced based on their adjusted gross income.

 

Senate Consideration and Potential Challenges

Although the House bill enjoyed bipartisan support, its fate in the Senate remains uncertain. While Senate Majority Leader Chuck Schumer expressed support for the bill, concerns regarding its cost and political implications may obstruct its passage.

 

Tax Return Amendments

Taxpayers need not file amendments in response to changes in the Child Tax Credit. The IRS reassures taxpayers that it will implement any necessary adjustments promptly without requiring additional steps from filers. However, original tax returns must be complete and accurate to facilitate smooth processing.


Danny Werfel, the IRS Commissioner, said, “We urge and encourage taxpayers to file when they're ready," Werfel said. "Don't wait on Congress. If there's a change that impacts your return, we will make the change, and we will send you the update, whether it's an additional refund or otherwise, without you having to take any steps."

Congress has often considered Internal Revenue Code changes either right before filing season or right after it begins, so Werfel said the IRS has "deep experience in assessing and reviewing" such changes.


"Once a bill has been published, we can and will implement these tax provisions within weeks after they're enacted," he said. But taxpayers' original returns must be complete and accurate, he said. For example, while some 23 million workers and families receive the earned income tax credit (EITC) each year, nearly one in five eligible taxpayers do not claim the credit, which averages $2,541, Werfel said.


By law, the IRS cannot refund taxpayers who claim the EITC until mid-February.


How would I receive the additional money if the expansion passes?

The IRS will automatically make the correct tax refund and mail you the physical check. It will NOT be by direct deposit. The commissioner said the money will be sent to you by check within weeks, so it will not be fast, but it will arrive if you qualify for this benefit.

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