Biden’s proposal, now known as the American Rescue Plan, is not currently law, but you can still get more money back with the current iteration of the Child Tax Credit. Essentially, the CTC is a credit that parents can claim to help lower their tax bill, depending on the number and age of their family members. For many, it can be a much-needed source of relief as part of a 2020 tax year.
Here’s everything you need to know about the CTC, including entry requirements for you and your kids, how much it’s worth, and Congress’s future plans to improve it.
What exactly is the child discount?
The CTC is a $ 2,000 credit that parents can claim on their taxes for any child under the age of 17 (same age bracket forwhen it comes to ). And if that credit exceeds the amount of taxes a family actually owes, parents can still receive up to $ 1,400 of the balance as a refund; this is technically referred to as the “child supplemental discount” or refundable CTC. For example, a married couple with children ages 5, 10, and 12 would receive a total child discount of $ 6,000 – unless they owe a refund, in which case they would receive $ 4,200.
Families with older children are also eligible: You can claim $ 500 for each child ages 17-18, or full-time students between the ages of 19 and 24.
Note that while the admission requirements are relatively broad, higher income families may receive lower credit. But married couples filing jointly with adjusted gross income of less than $ 400,000 are eligible for the full amount, as are individuals withunder $ 200,000.
How does the CTC compare to an incentive account?
In Biden’s American Rescue Plan (PDF), families with children under 17 and under would receive a credit of $ 3,000, while families with children under six would receive a credit of $ 3,600. His plan also requires the full amount to be available for refund in place of the current $ 1,400.
The plan also calls on families to get a childcare credit. A family with one child can receive up to $ 4,000 in total, and a family with two more children can receive $ 8,000. This tax credit would be paid back and available to families earning less than $ 125,000 per year. A family with an income of $ 125,000 to $ 400,000 will receive partial credit, although details of how much have yet to be announced.
“The Biden plan is the most impressive and ambitious child poverty plan ever in the United States,” tweeted economist Jason Furman, a former adviser to President Barack Obama’s administration. “This would not only help in the short term, but also provide long-term mobility benefits.”
According to the Center on Budget and Policy Priorities, increasing the amount of the refund to just $ 2,000 would lift more than 3 million people out of poverty.
Who wants to extend the child discount?
Politicians from both sides have expressed support for the expansion of the CTC.
“The child tax credit has overwhelming bipartisan support for a reason,” Senator Mike Lee, a Utah Republican, told the Wall Street Journal on Nov. 19.– anyone who wants to increase the CTC will get my support. “
Why does this tax credit receive so much support? In general, when taxes are paid back to families, they usually spend them. Those economic expenditures are expected to reinforce economic activity.
“Getting money into the hands of low-income people is a long-standing, time-honored approach to boosting the economy,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
Republicans first proposed the CTC in 1997 as part of the Taxpayer Relief Act. And it was Senator Marco Rubio, a Florida Republican, who headed the 2017 Tax Cuts and Jobs Act that doubled the credit from $ 1,000 to the current amount. Having Democrats push for a tax credit that Republicans created makes bipartisan support for improving credit for families more likely.