As reported by cnet,
With the House having passed thelate , economic aid is one step closer for struggling Americans. While the included in the bill may grab the headlines and , the package’s expansion of the child tax credit could mean more money for many families over time.
Theincreases the existing child tax credit, or CTC, to $3,600 per child under age 6, and $3,000 per child (up to 17 years old) each year. Along with boosting the dollar amount, the plan would let families receive the funds on a monthly basis instead of annually . And the bill would work to make sure lower-income families receive the payments. This increase in the CTC would reduce child poverty by 40%, according to a report from the Center on Budget and Policy Priorities.
At a basic level, the CTC is a credit parents can claim to help reduce their, depending on the number and ages of their dependents. For many, it may provide a much-needed source of relief as part of a . Here’s everything you need to know about the CTC, including eligibility requirements for you and your kids, how much it’s worth and Congress’s prospective plans to enhance it.
What is the Child Tax Credit and how does it work?
The CTC right now is a $2,000 credit parents can claim on their taxes for every child under the age of 17 (the same age range forwhen it comes to the first and second ). And if that credit exceeds the amount of , parents can still receive up to $1,400 of the balance as a refund; this is technically referred to as the “Additional Child Tax Credit” or refundable CTC. For example, a married couple with children ages 5, 10 and 12 would receive a total child tax credit of $6,000 — unless they’re , in which case they would receive $4,200.
Families with older kids are also eligible: You can claim $500 for each child aged 17 and 18, or full-time college students between the ages of 19 and 24.
Note that although the eligibility requirements are relatively broad, higher-income families may receive a reduced credit. But married couples filing jointly with an adjusted gross income (AGI) under $400,000 are eligible for the full amount, as are individuals with anunder $200,000.
How will the new relief bill change the Child Tax Credit?
Themaking its way through Congress would expand the tax credit so that:
- Families with children aged 17 and under would receive a credit of $3,000.
- Those with children under the age of 6 would receive a $3,600 credit.
The credit would be fully refundable, removing both the dollar cap and earnings limit that currently prevents many low-income families with children from receiving the full credit, according to the Center on Budget and Policy Priorities.
The size of the credit would start to diminish for single people earning more than $75,000 a year, and married couples earning more than $150,000 a year. If approved, the payments would be sent monthly over the course of a year, starting in July. (Democrats are working to make sure the monthly payments meet the requirements to be included in the bill.)
The bill also would also expand other child-related credits so families could claim up to half of their child-care expenses on their taxes.
For the bottom 20% of families in terms of income, the proposed expansion of the CTC would increase income by an average of 9.7% — even higher if you only consider tax filers with children, according to the Institute on Taxation and Economic Policy. The proposal would also lift 4.1 million children above the poverty line, cutting the number of children in poverty by more than 40%, the Center on Budget and Policy Priorities found.
Who wants to expand the Child Tax Credit?
Politicians from both parties have expressed support for expanding the CTC.
On Feb. 4, Sen. Mitt Romney of Utah, a Republican, unveiled his own proposal, which would provide $4,200 per year for every child up to the age of 6, as well as $3,000 per year for every child age 6 to 17.
Then on Feb. 8, Democratic Representatives Rosa De Lauro from Connecticut, Suzan DelBene from Washington and Ritchie Torres from New York reintroduced the American Family Act. The proposed legislation would act similar to Biden’s plan by offering a monthly amount for children — $300 for a child under 6 years old and $250 for a child between the ages of six and 17.
Why does this tax credit get so much support? Generally, because when taxes are refunded to families, they tend to spend it. That economic spending is expected to strengthen economic activity.
“Getting money into the hands of lower-income people is a long-standing, time-honored approach for stimulating the economy,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
Republicans first proposed the CTC back in 1997 as part of the Taxpayer Relief Act. And it was Sen. Marco Rubio, a Republican from Florida, who spearheaded the Tax Cuts and Jobs Act of 2017 that doubled the credit from $1,000 to its current amount. Democratic support for a tax credit created by Republicans makes a bipartisan plan for expanding the credit more likely.