House Approves $78 Billion Tax Bill Proposing Child Tax Credit Expansion Through 2025
The recently passed bipartisan tax bill by the House of Representatives represents a significant step towards extending the child tax credit until 2025. This $78 billion package may not fully reinstate the expansive child tax credit implemented during the COVID-19 pandemic, but it proposes substantial increases, potentially influencing taxpayers as early as the upcoming tax year.
The central element of this bill is the proposed raise of the maximum refundable tax break to $1,800 per child for the tax year 2023, a significant uptick from the previous $1,600 threshold. This increment is poised to benefit eligible families seeking additional financial relief during these challenging times. Furthermore, the bill outlines plans for subsequent increases, with the limit rising to $1,900 for the tax year 2024 and reaching $2,000 in the following year, with adjustments accounting for inflation.
If the bill successfully moves through the Senate, families filing their 2023 taxes may be eligible to claim the extended credit. Eligible families could potentially receive an average tax break of around $680 during this tax season, as projected by the Urban-Brookings Tax Policy Center. However, the outcome in the Senate remains uncertain.
The bill's significant implications extend particularly to low-income families, introducing changes that could reshape tax benefits. Under the current system, parents with an annual income of less than $200,000 (or $400,000 for couples filing jointly) with children aged seventeen and under qualify for the full child tax credit. However, the existing framework necessitates a minimum income threshold of $2,500 or the presence of three eligible dependents for any qualification. Moreover, the calculation of the maximum credit amount is determined as 15% of income over $2,500.
The proposed legislation seeks to simplify and enhance this process, allowing taxpayers to take 15% of their income over $2,500, multiplied by the number of eligible children, thereby establishing the maximum credit amount. Although the income thresholds would remain unchanged, the refundable portion of the credit would increase. Besides these adjustments, the proposed bill introduces a notable provision, allowing families to utilize the previous year's income for credit eligibility, thereby accommodating potential fluctuations.
The Center on Budget and Policy Priorities (CBPP) estimates that the proposal could have a transformative impact. Over 1 in 5 children would benefit from these changes in the first year, with an impressive 400,000 children expected to rise above the poverty line. CBPP's comprehensive analysis reveals that families of half of the 16 million children expected to benefit could experience increases of $630 or more.
Moreover, 40% of these families could witness gains of $1,000 or more, marking a substantial improvement in their financial standing. In the first year alone, a quarter of families with benefiting children could realize increases of at least $1,400. As this tax bill moves through the legislative process, its outcomes remain subject to negotiation, amendments, and the unpredictable nature of Senate deliberations. For now, families eagerly await the resolution of these legislative proceedings, hopeful for a positive outcome.
