ESSENTIAL NOTES ON CHILD TAX CREDIT
- Low-income families would be able to claim a greater amount of the child tax credit if a bipartisan extension was offered.
- Based on a study, families with lower incomes that receive the credit would see an average increase in their tax refund of $680.
- The agreement is far from the child tax credit expansion of the Pandemic era, when eligible families received monthly payments for up to $300 each kid.
A bipartisan compromise agreement on the child tax credit was introduced last week, and while it would help millions of children, it would not go quite as far as the popular tax benefit’s increase during the pandemic.
A press release from the Senate Finance Committee, “Wyden, Smith Announce Agreement on Tax Framework to Help Families and Main Street Businesses.”
Think tank analyses indicate that the proposed expansion of the child tax credit, introduced by Republican congressman Jason Smith of Missouri and Democratic senator Ron Wyden of Oregon, could assist approximately half of the lowest-income families, or 16 million children, and help lift 500,000 children out of poverty.
Benefiting households would get an estimated $680 when they paid their taxes in 2023, according to a report released last week by the nonpartisan Tax Policy Center.
The child tax credit was momentarily increased during the epidemic, allowing parents to receive payments of up to $300 per child each month. President Joe Biden and other Democratic lawmakers have argued in favor of making the policy permanent, pointing out that it reduced child poverty by half while it was in place in 2021. When the credit expansion expired in 2022, those gains were quickly undone, pushing almost 5 million children back below the poverty line.
Currently, parents who earn more than $2,500 annually in wages and have children under the age of eighteen can claim a credit on their federal income taxes of up to $2,000 per kid each year. Only $1,600 of that credit is “refundable,” so you can still claim it even if your income isn’t high enough to require you to pay extra in taxes. Accordingly, those with lower earnings receive a smaller portion of the credit than do those in better financial standing.
That’s a feature, not a bug, according to conservatives. According to Matt Weidinger, a senior fellow at the conservative think tank American Enterprise Institute, the new idea would undercut the income criterion, which incentivizes parents to obtain employment, said in a commentary.
The new compromise offered in this proposal would alter a facet of the credit that child poverty advocates have long criticized: the individuals who need it the most gain from it the least. Of Nevertheless, this is still significantly less than the program’s increase during the pandemic.
“This plan will be beneficial for sixteen million low-income children, and in today’s unfavorable political environment, it’s a great opportunity to pass pro-family legislation that supports the upward mobility of so many children,” Wyden said in a statement.
Under the proposed law, the proposal would become entirely refundable in 2025, allowing those without any income to receive the whole $2,000. This would occur gradually over the course of the next few years. According to a progressive think tank’s estimation, the Center for Budget and Policy Priorities, it would help 80% of the 19 million children who live in families that do not now receive the full credit in the first year.
To put it another way, the Tax Policy Center’s analysis indicates that the move would benefit 23.1% of households making under $40,500 and 51% of those making less than $21,000.
The plan would reinstate expired business tax benefits from the administration of Donald Trump in exchange for raising the child tax credit.
Although the bill was presented to the House of Representatives last week and progressed through its committee, the entire body has not yet had an opportunity to vote on it.
Politicians from both parties are scheming over the government budget for next year, which Congress has until March to approve.
As the tax season officially starts on the 29th of January (today), taxpayers can begin filing their federal tax returns as early as next week.
