2/10/24 – Consideration by the Senate is not expected until March and a timeline for passage is unclear.
1/31/24 – Votes passed in The House of Representatives. Now it moves on to the Senate. It is still NOT a law. If it is passed in both chambers of Congress, the IRS still has to implement it.
1/31/24 – The vote for Child Tax Credit (CTC) changes is set for 8 pm today.
1/29/24 – The bill was scheduled to be “considered” on the House floor today.
1/19/24 – The House Ways and Means Committee has advanced the tax deal bill deal to the House floor.
The new bill is called The Tax Relief for American Families and Workers Act of 2024. An agreement was reached in committee only today.
That is just in the committee. It still needs to be passed as legislation by Congress as a whole. We won’t get into how a bill is passed, but we still aren’t at the finish line and details remain to be seen. You can check out School House Rock for the basics of how a bill becomes law.
Under the hood for Child Tax Credit changes
As it moves through the congressional path to become law, the nuts and bolts could change. There are a lot of other provisions in the bill that are unrelated to the Child Tax Credit. You can read it all directly at the link in our source from Congress. We will just cover the credit.
Unknown: First lets’s address what is not in the bill before we get into the actual changes.
There is nothing in the bill or made public yet as to how changes will be implemented by the IRS for the 2023 tax year (filed in 2024). Here are some outstanding questions:
Will it be calculated on the returns? By automatic deposit? Checks?
What about people who already filed and whose returns have already been accepted?
Will it be distributed how it was done during the pandemic?
No word on any of that yet.
Congress has a lot on their plate right now with looming government shutdown over funding. This bill will likely be on the heels of funding being settled first. We know they are rushing it to get ready for when the IRS officially begins accepting returns on January 29th. Our personal confidence level on this happening quickly? Low. I digress.
Child Tax Credit Changes
Explain it to me like I’m a 5th grader.
You can compare the changes below from how it stands now. The section in bold is the big deal.
|If Law is Passed
|*Max Amount Tax Year 2023
|$1600 per child
|$1800 per child
|*Max Amount Tax Year 2024
|$1600 per child
|$1900 per child adjusted for inflation
|*Max Amount Tax Year 2025
|$1600 per child
|$2000 per child adjusted for inflation
|Partially. Not all of it. If you have no tax to “reduce”, you get nada. If the amount you qualify for exceeds the tax owed, only $1600 per child could be “refunded”. The remainder would just reduce tax liability.
|Partially. Not all of it. If you have no tax to “reduce”, you get nada. If the amount you qualify for exceeds the tax owed, only the amount for the corresponding year could be “refunded”. The remainder would just reduce tax liability.
|Earned income (in excess of $2,500) multiplied by 15 percent.
|Earned income (in excess of $2,500) multiplied by 15 percent then multiplied by number of qualifying children.
|How is it paid
|Calculated on Tax Return
|1st Income limit before the amount starts to get reduced
$400,000 (married filing jointly)
|If you make more than the 1st income limit
|The amount is reduced by $50 for each $1000 above the 1st income limit.
|Based on current tax year
|Option to calculate based on earnings from prior tax year in 2024 and 2025
|Must be under 17 at end of tax year
Tax Relief for Working Families Actual Language
As for now, below is how it is written.
Calculation of Refundable Credit on a Per-Child Basis.
Under current law, the maximum refundable child tax credit for a taxpayer is computed by multiplying that taxpayer’s earned income (in excess of $2,500) by 15 percent.
This provision modifies the calculation of the maximum refundable credit amount by providing that taxpayers first multiply their earned income (in excess of $2,500) by 15 percent, and then multiply that amount by the number of qualifying children. This policy would be effective for tax years 2023, 2024, and 2025.
Modification in Overall Limit on Refundable Child Tax Credit.
Under current law, the maximum refundable child tax credit is limited to $1,600 per child for 2023, even if the earned income limitation described above is in excess of this amount. This provision increases the maximum refundable amount per child to $1,800 in tax year 2023, $1,900 in tax year 2024, and $2,000 in tax year 2025, along with the inflation adjustment described below.
Adjustment of Child Tax Credit for Inflation.
This provision would adjust the $2,000 value of the child tax credit for inflation in tax years 2024 and 2025, rounded down to the nearest $100.
Rule for Determination of Earned Income.
For tax years 2024 and 2025, taxpayers may, at their election, use their earned income from the prior taxable year in calculating their maximum child tax credit if the taxpayer’s earned income in the current taxable year was less than the taxpayer’s earned income in the prior taxable year.
Join us in the live conversation about changes to the child tax credit.
SOURCE: Congress House Ways and Means Committee
- Announcement from House Ways & Mean Committee: 2024 Child Tax Credit change announcement
- Congressional Committee Releases | Press Release | Technical Summary
- Bill Text: Tax Relief for American Families and Workers Act of 2024
- Bill Progress Tracker: H.R.7024 – Tax Relief for American Families and Workers Act of 2024