In early January, a bipartisan tax framework was proposed with the goal of “promoting the financial security of working families, boosting growth and American competitiveness, and strengthening communities and Main Street businesses.”
The bill, known as the Tax Relief for American Families and Workers Act of 2024, consisted of 6 parts, one of which included changes to the Child Tax Credit that would increase the tax credit and make it easier for taxpayers to claim. On January 31, 2024, the bill was voted on and approved by the House of Representatives. The bill has moved to the Senate since, though, when the Senate will vote is uncertain.
(CBS News article: “House approves major bipartisan tax bill to expand Child Tax Credit, business breaks”; https://www.cbsnews.com/news/house-vote-tax-bill-child-tax-credit-business/)
2023 Child Tax Credit Requirements
Last year, to claim the 2023 Child Tax Credit, the taxpayer must have had a qualifying child that met the following requirements:
- Be under the age of 17 at the end of 2023
- Be the son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, or stepsister of the taxpayer, or a descendant of one of these
- Not provide more than half of their own financial support during the year
- Have lived with the taxpayer for more than half of the year
- Be properly claimed as the taxpayer’s dependent
- Only file a joint tax return if it is to claim a refund of withheld income tax or estimated tax paid
- Be a U.S. citizen, U.S. national, or U.S. resident alien, with a valid Social Security number
Furthermore, to qualify for the full 2023 Child Tax Credit for each qualifying child, the taxpayer’s annual income cannot be more than $200,000 ($400,000 if filing jointly).
(IRS website: Child Tax Credit; https://www.irs.gov/credits-deductions/individuals/child-tax-credit)
How the Bill Affects the Child Tax Credit
Currently, the maximum refundable Child Tax Credit for 2023 is calculated as 15% of earned income in excess of $2,500. The bill would change this calculation for tax years 2023, 2024, and 2025, where the maximum refundable Child Tax Credit will be 15% of earned income in excess of $2,500 for each qualifying child. Furthermore, the maximum refundable Child Tax Credit for 2023 is capped at $1,600 per child. The bill would increase this cap to $1,800 per child for tax year 2023, then to $1,900 for tax year 2024, and then to $2,000 for tax year 2025. The amounts for tax year 2024 and 2025 would be adjusted for inflation. For tax years 2024 and 2025, also, the bill would allow taxpayers to use earned income from the prior taxable year to calculate the maximum Child Tax Credit, if earned income in the current taxable year is lower.
(Senate Committee on Finance: The Tax Relief for American Families and Workers Act of 2024; https://www.finance.senate.gov/imo/media/doc/the_tax_relief_for_american_families_and_workers_act_of_2024_technical_summary.pdf)
Guidance
According to IRS Commissioner, Danny Werfel, taxpayers should not wait to see if the law passes before they file their taxes, as the IRS will make sure to give taxpayers what they are owed, without need for amended returns, if the law passes. Similarly, many tax professionals recommend that taxpayers file as soon as they are ready.
(Bloomberg Tax article: “Child Tax Credit Limbo Leaves Families With Tough Filing Choices”)
