How the Bipartisan Tax Deal Could Affect the Child Tax Credit in 2024 and 2025

How the Bipartisan Tax Deal Could Affect the Child Tax Credit in 2024 and 2025
How the Bipartisan Tax Deal Could Affect the Child Tax Credit in 2024 and 2025

The child tax credit is a tax benefit that helps millions of families with children reduce their tax liability and boost their income. In 2021, the child tax credit was temporarily expanded to provide more generous payments to eligible parents, as well as monthly advance payments for the second half of the year. However, these changes expired at the end of 2021, and the child tax credit reverted to its pre-pandemic level of $2,000 per child under 17, with only $1,400 being refundable.

But there is hope for parents who want to see the child tax credit extended and enhanced. A bipartisan tax deal, called the Tax Relief for American Families and Workers Act of 2024, was passed by the House of Representatives on January 31, 2024, and is now awaiting a vote in the Senate. This bill would make several important changes to the child tax credit for tax years 2024 and 2025, such as:

  • Increasing the maximum credit amount from $2,000 to $2,100 per child, and adjusting it for inflation.
  • Making the credit fully refundable, meaning that parents can receive the full amount of the credit even if they owe no taxes.
  • Allowing parents to use their income from either the current or prior year to calculate the credit, which can help if their income drops and they become eligible for a larger credit.
  • Removing the $2,500 income threshold to claim the credit, which currently excludes some very low-income families from receiving any benefit.

These changes would benefit millions of families, especially those with low and moderate incomes, and multiple children. According to the Tax Foundation, a nonpartisan think tank, the bill would lift about 400,000 children above the poverty line and provide more financial support to an additional 3 million children in families with incomes below the poverty line¹. The bill would also simplify the administration of the credit and reduce errors and fraud.

However, the bill is not without its drawbacks. First, it would not restore the monthly advance payments that many parents received in 2021, which provided a steady source of income and helped them cover their expenses. Second, it would not extend the credit to 18-year-olds and full-time college students, as the 2021 expansion did. Third, it would only apply for two years, creating uncertainty for parents and policymakers about the future of the credit. Fourth, it would not address the issue of coordination with other child-related benefits, such as the child and dependent care credit, the earned income tax credit, and the Supplemental Nutrition Assistance Program (SNAP).

The bill also faces an uncertain fate in the Senate, where it needs 60 votes to overcome a filibuster. Some Republicans have expressed concerns that the bill would encourage illegal immigration, as undocumented immigrants with children who have Social Security numbers could claim the credit². Some Democrats have argued that the bill does not go far enough and that the child tax credit should be made permanent and more generous³.

The child tax credit is a vital policy tool that can help families with children afford their basic needs, invest in their children’s education and health, and reduce child poverty and inequality. The bipartisan tax deal is a step in the right direction, but it is not a perfect solution. Parents and advocates should keep an eye on the Senate and urge their lawmakers to support the bill, or even improve it, to ensure that the child tax credit continues to serve its purpose and reach its potential.

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