The Child Tax Credit (CTC) is a benefit that helps families with children reduce their tax liability and increase their refunds. The CTC was expanded and enhanced in 2021 as part of the American Rescue Plan Act, which provided up to $3,600 per child under age 6 and $3,000 per child age 6 to 17, and distributed half of the money in monthly payments from July to December 2021. This boosted the incomes of millions of families and lifted many children out of poverty.
However, the 2021 CTC expansion was only temporary and expired at the end of the year. Many families are wondering whether they will receive the monthly payments again in 2024, or whether the CTC will revert to its pre-pandemic level of $2,000 per child under age 17, with no advance payments.
The bipartisan deal
On January 16, 2024, a bipartisan group of lawmakers announced a deal that would extend and modify the CTC for four more years, through 2025. The deal, known as the Tax Relief for American Families and Workers Act of 2024, is part of a larger package that also includes some corporate tax breaks and other provisions. The deal has the support of the leaders of the House Ways and Means Committee and the Senate Finance Committee, but it still needs to pass both chambers of Congress and be signed by the president.
The deal would not bring back the generous 2021 version of the CTC, which was widely praised by anti-poverty advocates and Democratic lawmakers. Instead, it would make some changes to the CTC that would mainly benefit low-income families with multiple children, who currently receive less than the full amount of the credit due to a complex formula. The deal would also adjust the CTC for inflation, which would increase the value of the credit for all eligible families over time.
The deal would not restore the monthly payments of the CTC, which were popular among many families who appreciated the steady cash flow. Instead, families would receive the CTC as a lump sum when they file their tax returns, as they did before 2021.
What it would mean for your taxes
The amount of CTC that you would receive under the deal would depend on your income, the number and ages of your children, and the year in which you claim the credit. Here are some examples of how the deal would affect different types of families, compared to the current law and the 2021 expansion:
- A single parent with one child under age 6 and an income of $15,000 would receive $3,600 in CTC in 2021, $1,800 in 2023 (under current law), and $1,900 in 2024 (under the deal).
- A married couple with two children under age 6 and an income of $40,000 would receive $7,200 in CTC in 2021, $4,000 in 2023 (under current law), and $4,200 in 2024 (under the deal).
- A married couple with three children ages 6 to 17 and an income of $75,000 would receive $9,000 in CTC in 2021, $6,000 in 2023 (under current law), and $6,300 in 2024 (under the deal).
- A married couple with four children ages 6 to 17 and an income of $150,000 would receive $12,000 in CTC in 2021, $8,000 in 2023 (under current law), and $8,400 in 2024 (under the deal).
The deal would also allow families to choose whether to use their earned income from the current year or the previous year to calculate their CTC, which could help them maximize their benefit if their income fluctuates.
The outlook and the alternatives
The deal faces an uncertain future in Congress, as it needs to overcome the opposition of some Republicans who oppose any expansion of the CTC, and some Democrats who want to preserve the 2021 version of the CTC. The deal also competes with other priorities, such as the Build Back Better Act, which includes a one-year extension of the 2021 CTC, but has stalled in the Senate due to disagreements among Democrats.
If the deal fails to pass, or if it is significantly altered, families may have to adjust their budgets and expectations for the CTC in the coming years. Some families may also qualify for other tax credits, such as the Earned Income Tax Credit, the Child and Dependent Care Credit, or the Recovery Rebate Credit, which could offset some of the loss of the CTC.
For more information on the CTC and how it affects your taxes, you can visit the IRS website or consult a tax professional.
Sources:
¹: Proposed child tax credit changes might create confusion on 2023 returns
²: Bipartisan deal could boost the child tax credit — but wouldn’t bring back the generous 2021 version. Here’s what it would mean for your taxes.
³: Lawmakers reach deal to expand child tax credit, extend business tax breaks
⁴: Child tax credit confusing for 2023 returns if bill passes in 2024
⁵: What Congress’ New Child Tax Credit Deal Could Mean for You
⁶: Congress has a deal to expand the Child Tax Credit. Here’s who would benefit
: https://www.irs.gov/credits-deductions/child-tax-credit-and-credit-for-other-dependentsr
Source:
(1) Proposed child tax credit changes might create confusion on 2023 returns. https://www.msn.com/en-us/money/personalfinance/proposed-child-tax-credit-changes-might-create-confusion-on-2023-returns/ar-BB1hdHB2.
(2) Bipartisan deal could boost the child tax credit — but wouldn’t bring back the generous 2021 version. Here’s what it would mean for your taxes.. https://www.msn.com/en-us/money/personalfinance/bipartisan-deal-could-boost-the-child-tax-credit-but-wouldn-t-bring-back-the-generous-2021-version-here-s-what-it-would-mean-for-your-taxes/ar-AA1n8sBP.
(3) Lawmakers reach deal to expand child tax credit, extend business tax breaks. https://news.yahoo.com/lawmakers-reach-deal-expand-child-151700738.html.
(4) Child tax credit confusing for 2023 returns if bill passes in 2024. https://www.usatoday.com/story/money/taxes/2024/01/24/child-tax-credit-2023-bill-2024-increase/72346722007/.
(5) What Congress’ New Child Tax Credit Deal Could Mean for You. https://time.com/6556152/congress-expanded-child-tax-credit-deal-money/.
(6) Congress has a deal to expand the Child Tax Credit. Here’s who would …. https://www.cbsnews.com/news/child-tax-credit-increase-heres-who-would-benefit/.
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