What's Happening With the New Child Tax Credit?

The House has passed a new child tax credit as part of a sweeping tax package. Here's what that could mean for you.

US Capitol building
(Image credit: Getty Images)

The U.S. House of Representatives voted recently in favor of a $78 billion tax deal, which includes a newly expanded child tax credit and various tax breaks for businesses.

“Fifteen million kids from low-income families will be better off as a result of this plan," said Senate Finance Committee Chair Ron Wyden, D-Ore. in a statement regarding the tax deal.

Lawmakers had hoped to pass the new child tax before Monday, Jan. 29 when tax season began, but the House of Representatives was on recess at that time. However, now that the tax package has passed the House with an overwhelming 357 to 70 vote, the bill that includes the new child tax credit advanced to the U.S. Senate.

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Child tax credit update

The tax package will need 60 votes to pass the Democratic-led Senate, and it isn't yet clear whether that will happen. There is still some opposition to the bill on both sides of the aisle, and no vote has been scheduled. Congress has been negotiating other issues, including border security and meeting the next government funding deadline. A vote on the child tax credit will need to wait until Congress returns from recess at the end of the month.

However, if the Senate passes the child tax credit this tax season, lawmakers say eligible families could benefit as soon. That’s because 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, refund adjustments will made within six to twelve weeks, and taxpayers will 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 newly announced deal:

  • Ensuring families with lower incomes and multiple children will qualify for a larger portion of the credit.
  • Giving families the option to use prior year income to determine the refundable amount of the credit.
  • Adjusting the child tax credit amount for inflation.

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 still 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 already taken steps to allow taxpayers to withdraw or pay back potentially incorrect claims.

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). 

Impacts of expanded child tax credits

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.

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Katelyn Washington
Tax Writer

Katelyn has more than 6 years’ experience working in tax and finance. While she specializes in tax content, Katelyn has also written for digital publications on topics including insurance, retirement and financial planning and has had financial advice commissioned by national print publications. She believes that knowledge is the key to success and enjoys helping others reach their goals by providing content that educates and informs.