While Biden’s plan and this possible change to the children’s tax credit are not yet law, you can still get more money back on your tax refund under the current version of the credit. On a basic level, the CTC is a credit that parents can claim to help them reducedepending on the number and age of their family members. For many, it can be a much-needed source of relief as part of a diet .
Here’s everything you need to know about the CTC, including eligibility requirements for you and your kids, how much it’s worth, and Congress’s future plans to improve it.
What is the tax credit for children?
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 the first and second ). And if that credit is greater than the amount of 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 have , 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 those with anunder $ 200,000.
How is the tax credit for kids tied to Biden’s incentive bill?
Biden’s American Rescue Plan (PDF) called on lawmakers to expand the CTC. The proposal that House Democrats plan to release says that families with children 17 and under would receive a $ 3,000 credit, while families with children under the age of 6 would receive a $ 3,600 credit. It also makes the credit fully repayable, removing both the dollar limit and the income limit that currently prevent many low-income families and children from receiving the full credit, according to the Center for Budget and Policy Priorities.
The size of the credit would start to decline for singles earning more than $ 75,000 a year, and married couples earning more than $ 150,000 a year. If approved, payments would be sent monthly over the course of a year, starting in July.
Biden’s original plan also called for families to get 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.
For the bottom 20% of families in terms of income, the proposed extension of the CTC would increase income by an average of 9.7% – even higher if you only consider tax returns with children, according to the Institute on Taxation and Economic Policy . The proposal would also lift 4.1 million children above the poverty line, reducing the number of children in poverty by more than 40%, the Center for Budget and Policy Priorities said.
Who exactly wants to expand the child discount?
Politicians from both sides have expressed support for the expansion of the CTC.
On February 4, Massachusetts Senator Mitt Romney unveiled his own proposal, which would bring in $ 4,200 per year for each child up to age 6, as well as $ 3,000 per year for each child aged 6 to 17. plan could be combined with that of House Democrats.
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.