[Feb 2024 update] The House has voted on a bill based on the Senate proposal (discussed in update below), known as the Tax Relief for American Families and Workers Act of 2024, which expands the Child Tax Credit (CTC) for many lower income families,
It was approved with bipartisan support in the House, and is scheduled to be voted upon in the Senate later this month. The house passed legislation has the following key changes to the CTC over the next two years.
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- Taxpayers can use their income (AGI) from either the current or prior year to meet the $2,500 minimum earned income qualification criteria, This would increase qualification for the credit by allowing those who lose their jobs or see a significant drop in income in the last 12 months. This would go into effect with the 2024 tax year.
- Under the proposed bill the refundable portion of the tax credit (known as the ACTC), increasing the maximum refundable amount to $1,800 per child in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025.
- Families with multiple children could also see a larger credit by allowing a new calculation based on multiplying the parent’s income by 15% as well as by the family’s number of children. This means families with two or more children and low incomes can qualify for a bigger CTC.
That’s because the original CTC requires a parent to have at least $2,500 in annual income, which means that a family with little or no income may not qualify for the CTC.
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[Jan 2024 update] Under the business and family tax package proposal in the Senate, the 2024 CTC payment could increase for millions of lower income households.
The CTC eligibility changes proposed under the proposal include expanding payments and allowing low-income parents with multiple children to receive more of the refundable portion of the tax credit for each child, even if they don’t qualify for the current full $2,000 per child.
The proposed modifications in eligibility rules would expand the refundable portion of the tax credit (known as the ACTC), increasing the maximum refundable amount to $1,800 per child in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025.
Senate Finance Committee Chair Ron Wyden (D-Ore.) notes that the proposal could assist approximately 15 million children near the poverty line.
Senate Committee on Finance
The overall child tax credit, currently at $2,000 per child, would also be indexed to inflation for the first time, resulting in a $100 boost on tax returns filed in 2025 and 2026.
Families can use either the current or prior year income (AGI) to determine eligibility for the CTC, effective for tax years 2023, 2024, and 2025.
Families already qualifying for the full $2,000 credit per child would maintain their eligibility, and the overall CTC payment would increase with the indexing of payments to inflation (observed in 2025 filings).
Unlike the 2021 CTC deal, there will be no reintroduction of monthly payments for eligible families, who would still need to claim payments through their tax return as per existing rules.
The Tax Relief for American Families and Workers Act of 2024, as the new plan/bill is known will now be sent to the house for review and formal introduction as a new bill. I will continue to monitor the progress and you can subscribe via email to get the latest updates.
Illustration of the revised Child Tax Credit (CTC)
Currently a single parent with three children earning $10,000 annually qualifies for $1,250 in child tax credit benefits. In contrast, a family with two children earning $160,000 annually receives the full CTC of $4,000, equating to $2,000 per child.
With the new agreement, the single parent earning $10,000 would experience a threefold increase in their payment – from $1,250 for three kids to $3,750 for three kids. However, there would be no change for the family earning $160,000.