Changes to Child Tax Credits Proposed in Budget Bills
Both the House and Senate are working on a budget adjustment bill that includes an increase in child tax credits. Interestingly, the House version suggests a bigger payment for families.
So, what is a child tax credit? It’s a partially refundable tax credit for taxpayers with children or dependents under 17. For parents making up to $200,000 a year, they can currently claim $2,000 per eligible child through the 2025 tax year. However, without this new law, the benefit would drop to $1,000 per child after changes from the Tax Cuts and Jobs Act take effect in 2017.
Congress aims to boost the maximum credit during this budget settlement process. The Chamber of Commerce, however, is likely to contest the proposed maximum amounts. The House suggests raising the maximum credit to $2,500 per child, whereas the Senate proposes $2,200.
The House plan intends for the $2,500 limit to last until 2028, then decrease to around $2,100, with adjustments for inflation afterward. The Senate’s version would adjust the maximum credit for inflation starting in 2026. Both proposals maintain a refund limit of $1,700.
Regardless of whatever the final credit amount is, about 17 million children could still miss out on full benefits. That’s mainly because the child tax credit isn’t fully refundable. Starting in 2025, families with income tax below $2,500 won’t be eligible for a portion of this credit. Those who earn above that might qualify for an additional refundable credit, which can amount to $1,700 if their regular child tax credit exceeds their tax liability.
Currently, around 2 million children fall short of meeting the earnings threshold for the Child Tax Credit. Interestingly, while some families do earn above $2,500, about 15 million more aren’t receiving their full credits because their income tax obligations outstrip what they can claim.
Restrictions on Claiming Child Tax Credits Persist
Both the Senate and House proposals for the Child Tax Credit are continuing the restrictions that were implemented in 2018, which require families to have a Social Security number in order to claim the credit. This rule cost approximately one million children their eligibility back in 2018.
Under the House plan, both parents must have a Social Security number to claim benefits, whereas the Senate only requires one parent to have one.
For married couples filing separately, they can claim credits for eligible children and dependents, but under the House proposal, this might no longer be an option. The Senate plan maintains this eligibility.
Estimates suggest that the number of children on Social Security numbers not receiving the maximum child tax credit benefits could rise from 17 million to over 26 million according to the House’s proposal.
As for movements within Congress, there seems to be a mix of opinions, especially regarding support from Senate Republicans. It remains to be seen if the bill will be approved in its current form. There are reports suggesting that President Trump might receive the bill by July 4th.
