Janice R. Andrews
Millions of American families may benefit from a bipartisan plan that was passed by the House last week and proposes adjustments to the federal child tax credit. Helping low-income families—especially those with several children—is the main goal of the planned extension. According to the Urban-Brookings Tax Policy Center, most households making less than $21,000 are likely to see a tax benefit.
Main Modifications to the Tax Credit:
Under the current child tax credit, each child may receive a maximum break of $2,000 and a maximum $1,600 in refundable amounts. The proposed law aims to gradually increase the refundable amount, making it $1,800 for tax returns filed in 2023, $1,900 for the following year, and $2,000 for tax returns filed in 2025. The bill also modifies the total credit amount to momentarily conform to inflation rates.
Households must earn a minimum of $2,500 in order to qualify for refundable child tax credit payments. The plan does not restore the monthly payments that were instituted under the American Rescue Plan in 2021. Children must be considered qualifying dependents and have a Social Security number; the Internal Revenue Service website outlines all requirements.
Effect on Income Tax Bills:
According to the Tax Policy Center, households that receive the tax credit might enjoy an average tax savings of $680 in 2023. Roughly 25% of households with annual incomes under $40,500 and half of those making less than $21,000 would also benefit from tax cuts. Remarkably, the Center estimates that the law would also help the top 1% of earnings, providing them with an after-tax income rise of 0.5% ($9,500) in 2023.
Congressional Difficulties:
The plan needs to pass the Senate before Americans can take advantage of these tax incentives. Its future is unclear, though, since some Republicans are reluctant to support it, citing worries about allowing immigrants granted parole by the Biden administration to claim the child tax credit. Republicans in the Senate express displeasure at not being included in the negotiations and worry about possible fallout for the November election.
Notwithstanding the difficulties, the bill has the potential to greatly help low-income Americans if it passes the Senate without major opposition. The measure also intends to expand a tax credit for the development or renovation of rental housing geared at lower-income households, which could result in the addition of almost 200,000 new housing units nationally.
