Proposed Child Tax Credit Changes: What You Need to Know

Overview: The House has passed bipartisan tax deal proposing changes to the Child Tax Credit (CTC) that could significantly impact millions of families. Here’s a breakdown of what these changes entail and how they might affect you:

1. Targeted Benefits:

• The revamped CTC primarily benefits low-income families, particularly those with multiple children. Over 95% of the new benefits for 2023 would go to households with children earning up to $40,500.

2. Eligibility Criteria:

• Under the proposed changes, low- and moderate-income earners may be eligible for a payment of up to $1,800 per child for 2023, even if they don’t owe income taxes. Eligibility is determined based on income and dependent status.

3. Filing Process:

• Families can claim the credit by filing a 1040 tax return and attaching Form 8812. Free filing options are available, including Direct File through the IRS.

4. Senate Consideration:

• The Senate will review the proposal in the coming weeks, but its passage is uncertain. Some concerns have been raised about potential disincentives to work and eligibility for undocumented immigrants.

5. Effective Dates:

• If passed, the changes would be retroactively effective for tax year 2023 and extend through 2025. Refunds would be issued to eligible taxpayers who have already filed their 2023 returns.

6. Credit Mechanics:

• The proposed changes gradually increase the size of the credit for families who don’t owe income taxes. Larger families would also qualify for a larger credit at lower income levels.

7. Not Similar to 2021 Payments:

• The proposal differs from the pandemic-era Child Tax Credit payments in 2021. While those payments were fully refundable and distributed monthly, the proposed changes focus on increasing the credit amount for eligible families.

8. Impact on Higher Earners:

• Higher-income families may benefit from an inflation adjustment to the maximum child tax credit, expected to take effect in 2025. However, the proposal primarily targets low- and moderate-income households.

9. Understanding Tax Credits vs. Refunds:

• A tax credit directly reduces tax liability, while a refundable credit can result in a payment even if no taxes are owed. The proposed changes make a larger portion of the CTC refundable, benefiting eligible families.

As discussions continue and potential legislation evolves, staying informed about these proposed changes can help families navigate their tax obligations and potential benefits more effectively.