In an effort to guarantee that more American families can take advantage of the almost three-decade-old benefit, some politicians are pushing for an increase of the federal Child Tax Credit.

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The heads of the congressional tax committees revealed a plan to prolong certain company tax credits and increase the CTC on Tuesday. The agreement is a significant step toward resolving some of the issues with the tax credit, which was intended to support families’ financial stability but has disregarded the needs of the poorest children, according to anti-poverty groups, even though passage is not assured.

Additionally, the revamp would occur more than two years after the extended kid Tax Credit’s expiry, which in 2021 handed out half of the tax benefit via six monthly checks and sweetened the benefit to as high as $3,600 per kid. Millions of children were lifted out of poverty and supported by their parents as a result of that initiative; the parents used the additional cash for things like clothes, preschool, and other child-related expenses.

The increased tax credit, despite its widespread appeal, ran out in 2021 and went back to its previous cap of $2,000 per kid in 2022. It has severely impacted a large number of low-income families, according to specialists.

Millions of parents are finding it more difficult than ever to make ends meet due to increased food costs, the high expense of child care, and the start of student loan payments, according to a statement from Ailen Arreaza, executive director of ParentsTogether Action, a national family advocacy organization.

She said that “by expanding the CTC for some of the lowest income families,” the new agreement constitutes a significant milestone.

Here’s what you should know about the child tax credit’s planned modifications.

What is wrong with the first Child Tax Credit?

Some lawmakers have been criticizing the CTC’s structure for years, pointing out that some of the nation’s poorest children are not eligible for the benefit.

This is due to the fact that the tax credit is dependent on the income of the parents, therefore a family with low or no income could not be eligible for the CTC.

With the CTC, parents can get tax savings of up to $2,000 for each kid under the age of 17. Because the tax credit is income-based and parents must make at least $2,500 in order to qualify, many of the poorest families were left out.

“Virtually all children living in households in the top half of the income distribution qualify for the full credit amount,” according to a 2020 analysis by researchers at Stanford University and the University of Michigan, while “the vast majority of children living in households in the bottom decile of the national income distribution are completely ineligible.”

How is the Child Tax Credit altered by the congressional agreement?

More families would find it simpler to be eligible for the child tax credit and to get larger yearly tax returns under the terms of the agreement.

First, if a taxpayer’s income falls and they are no longer eligible for the tax credit, they can still use their income from the previous year to calculate the CTC. The 2024 tax year would be the start of this.

Second, in order to assist more low-income families in receiving a somewhat bigger benefit, the formula used to calculate the CTC’s refundable tax credit would be modified. As things stand, the tax credit for low-income families with several children may be limited since the computation is based on multiplying a parent’s income by 15%. The revised formula would double the number of children in the household by 15% and multiply the parent’s income by that amount.

A third adjustment relates to the CTC’s partly refundable feature, which can return up to $1,600 in your yearly tax refund if you are receiving a refund or owe no taxes. The clause would increase the maximum refundable amount to $1,800 in 2023, $1,900 in 2024, and $2,000 in 2025 for each kid.

How Many Children would the Child Tax Credit modifications benefit?

According to the liberal-leaning research group Center on Budget and Policy Priorities, which has advocated for the expansion of the CTC, some 16 million children from low-income households would benefit. According to their study, forty percent of those households would earn $1,000 or more, and a quarter would receive more than $1,400 in the first year.

Would families in the middle class benefit as well?

In addition to an increase in the refundable portion of the CTC, millions of families would gain from an annual inflation adjustment in 2024 and 2025. For example, in the event that one of those tax years has 5% inflation, the CTC would increase by $100.

Would monthly cheques from the Child Tax Credit be returned?

The reinstatement of the CTC’s monthly payments is not part of the compromise that Congress has reached, in spite of the insistence of Democratic politicians and anti-poverty organizations.

Alternatively, the CTC can be claimed by families with children under 17 at the time of yearly tax return filing. They can add up to $1,800 to their 2023 tax refund if they already have a tax refund or don’t owe any money. (The majority of taxpayers will submit their tax returns for 2023 before April 15 of this year.)


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