A bipartisan compromise bill on the child tax credit proposed offers potential benefits for millions of children. The proposed extension, championed by Democratic Senator Ron Wyden of Oregon and Republican Congressman Jason Smith of Missouri, has the potential to uplift 500,000 children from poverty and provide assistance to around half of the lowest-income families, covering a total of 16 million kids according to analyses conducted by various think tanks.
House lawmakers have moved forward with a $78 billion bipartisan tax package, which includes temporary adjustments to the child tax credit that may have significant implications for millions of families during this year's filing season.
The proposal, which has received approval from the House Ways and Means Committee, is now facing an uncertain path forward as negotiations persist. While the bill is currently on hold during the House's recess this week, its potential implications are garnering attention as tax season approaches.
As of 2023, the child tax credit stands at a maximum of $2,000 per qualifying child under the age of 17, providing a dollar-for-dollar reduction in taxes. For the median-income Americans, the full $2,000 is accessible due to sufficient tax liability. However, the credit phases out for single filers with a modified adjusted gross income (MAGI) of $200,000 and $400,000 for married couples filing jointly. While up to $1,600 of the credit is refundable for 2023, enabling a refund even with no taxes owed, lower earners may find it challenging to access this benefit.
Potential Increase in the Child Tax Credit
The bipartisan tax bill, if enacted, introduces several temporary adjustments to the child tax credit, primarily benefiting lower-earning Americans, according to the Urban-Brookings Tax Policy Center.
The refundable portion of the credit could see increments, reaching $1,800 for tax year 2023, $1,900 for 2024, and $2,000 for 2025. Importantly, a new formula is proposed, shifting from the current formula based on earned income above $2,500 to a per-child basis. This modification aims to expand access, particularly for lower-income families with multiple qualifying children.
Chuck Marr, Vice President for Federal Tax Policy for the Center on Budget and Policy Priorities, highlights the attempt to rectify the current imbalance of the child tax credit, which tends to favor higher-income individuals.
For tax years 2024 and 2025, filers may use the previous year's earned income to calculate the credit, and the provision adjusts the $2,000 tax credit for inflation.
As negotiations unfold and the bill's fate hangs in the balance, American families await further clarity on potential changes to the child tax credit and their implications for the upcoming tax season.
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Who Will Qualify for a Child Tax Credit?
To qualify for the CTC, taxpayers and their children must meet specific eligibility criteria, considering factors such as the child's age and their relationship to the individual claiming them.
Income thresholds play a crucial role, leading to a phased-out credit for higher earners. The claiming process for tax year 2023 involves filing the federal tax return (Form 1040 or 1040-SR) by April 15, 2024, or by October 2024 with a tax extension.
The bill encompasses provisions to defer the requirement for deducting research and experimentation expenditures, extend 100-percent bonus depreciation until 2025, and increase the Code Sec. 179 deduction limitation. These measures are designed to provide businesses with the necessary incentives for growth, innovation, and investment.
In a move with global implications, the comprehensive bill extends tax treaty-like benefits to Taiwan. This measure seeks to strengthen economic ties and create a more favorable environment for international cooperation.
Claiming Process and Documentation
Taxpayers seeking to benefit from the enhanced CTC need to be aware of the claiming process. Filing the federal tax return (Form 1040 or 1040-SR) by the deadline of April 15, 2024, or by October 2024 with a tax extension is crucial. Additionally, completing Schedule 8812 ("Credits for Qualifying Children and Other Dependents") is necessary to determine the CTC amount and the potential for a partial refund.
As this comprehensive tax bill makes its way through legislative channels, businesses, families, and individuals are closely monitoring the potential impact of these proposed changes on their financial landscape. The bill's reception and potential adjustments during the legislative process will undoubtedly shape the future of the U.S. tax code.
