At the end of January, the U.S. House of Representatives passed $78 billion tax legislation that includes a newly expanded child tax credit (CTC) and various tax breaks for businesses.
Since then, the bipartisan tax package has been stalled in the U.S. Senate. Although Congress has returned from its recent recess, obstacles remain, and the hope that the new child tax credit will become law before the end of the 2024 filing season is dwindling.
Senate Finance Committee ranking member Mike Crapo (R-Idaho) and other Republicans have expressed concern about a provision in the House version of the bill. That provision would allow families to use prior year income to claim the child tax credit (CTC). Sen. Crapo previously stated that, due to that provision, the bill had "no near-term path forward in the Senate."
Subscribe to Kiplinger’s Personal Finance
Be a smarter, better informed investor.
Save up to 74%
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Crapo argues that using prior-year income would allow families with no income to claim the credit, which he says would "transform the CTC from primarily working family tax relief into a government subsidy."
While lawmakers have come closer to an agreement on the tax package, the Senate has other priorities, such as national security and reauthorizing FISA before the April 19 deadline.
In an April 5 letter, Senate Majority Leader Chuck Schumer (D-NY) mentioned the opportunity to make progress on the child tax credit "in the weeks and months ahead." But today is the April 15 tax deadline.
Child tax credit 2024 update
Right now, it is not clear whether an expanded child tax credit will become law before the end of the 2024 tax filing season (or at all). The tax package will need 60 votes to pass the Democratic-led Senate, and although the votes might be there, time is running out.
However, if Congress passes changes to the child tax credit this tax season, lawmakers have said eligible families could benefit as soon as they receive their tax refund. That’s because, as the bill stands now, the expanded credit would be retroactive to the 2023 tax year (for tax returns being filed now).
IRS Commissioner, Danny Werfel has confirmed that if the bill becomes law before the April 15 tax deadline, refund adjustments will made within six to twelve weeks, and taxpayers would not need to take any action if they've already filed their 2023 tax returns.
However, the child tax credit expansion, if it does happen, won’t reach as far as it did under President Joe Biden’s American Rescue Plan. Here's what the expansion would look like under the House version of the bill:
- Ensuring families with lower incomes and multiple children will qualify for a larger portion of the credit. (The maximum refundable portion of the credit would increase from $1,600 to $1,800 for the 2023 tax year.)
- Adjusting the child tax credit amount for inflation.
- Giving families the option to use prior year income to determine the refundable amount of the credit (the provision in question that could be removed).
Given the current framework, policymakers say families with the lowest incomes and multiple children will benefit the most from an expanded child tax credit.
However, even if the new CTC doesn't become law, the refundable portion of the child tax credit will increase for the 2024 tax year. But, the scheduled increase will not benefit families with lower incomes like the proposed child tax credit would.
Bipartisan tax bill child tax credit
The tax package that includes expanding the child tax credit will come with a hefty price tag of approximately $78 billion, and how the expansion would be funded has been key in negotiations between Democrats and Republicans. The clawing back of a pandemic-era tax credit, the employee retention credit (ERC), could in part fund the new child tax credit deal.
The ERC offered incentives to businesses to retain employees, but as Kiplinger has reported, the IRS has seen a significant amount of fraudulent ERC claims. The agency issued a moratorium on processing new claims in 2023 and has offered programs to allow taxpayers to withdraw or pay back potentially incorrect claims. The deadline for one such program was March 22.
However, funding an expanded child tax credit is not the only hurdle the tax package has faced. As mentioned, the bipartisan tax deal also includes compromises on other issues, which include restoring some business incentives from the Tax Cuts and Jobs Act (also known as the Trump Tax Cuts).
Increased child tax credit
The pandemic-era expanded child tax credit kept millions of children out of poverty, but that changed when the credit expired. Data show that the poverty level increased from 5.2% to 12.4% when families could no longer benefit from the expansion.
Democrats have been trying to bring the federal expanded child tax credit back since its expiration, but past attempts have failed. However, lawmakers are now closer than ever to partially restoring the credit.
Related Content
Biden Proposes New Homebuyer Tax Credits
Will Retirees Stop Paying Tax on Social Security Next Year?
Families and Businesses Would Get Big Tax Breaks in Bipartisan Tax Deal
Social Media, Guns, Taxes, Abortion: New Supreme Court Cases You Need to Know
What Would a Government Shutdown Do to the IRS?
How Three New Supreme Court Rulings Impact Your Money
Businesses Would Get Lots of Tax Savings Under House GOP Plan: Kiplinger Tax Letter
What Is the Bonus 'Guaranteed' Standard Deduction?
