Eligible families may see a boost in child tax credits as a bipartisan bill known as the Tax Relief for American Families and Workers Act of 2024 progresses through the legislative process. Here’s an overview of the tax bill and what it could mean for American families.

What Is the Child Tax Credit?

The child tax credit (CTC) is a federal tax benefit that provides financial support for taxpayers raising children under the age of 17. This credit can directly reduce your tax liability, potentially eliminating it entirely. Additionally, some taxpayers might qualify for a partial refund of the credit through the “additional child tax credit” (ACTC). To be eligible, taxpayers and their children must meet specific criteria, including the child’s age and their relationship to the individual claiming them.

To maximize the benefits of the child tax credit, taxpayers need to meet income requirements since the credit gradually reduces for higher-income earners. If your modified gross income surpasses the threshold, you might receive a reduced credit amount or become ineligible altogether.

How Much is the Child Tax Credit for Taxes Filed in 2024?

For 2023 (taxes filed in 2024), the child tax credit stands at $2,000 per eligible dependent child for those with a modified adjusted gross income (MAGI) below $400,000 (for married filing jointly) or $200,000 (for all other filers). The refundable portion, called the additional child tax credit, can reach up to $1,600. However, if your MAGI surpasses these thresholds, your credit decreases by $50 for every $1,000 your income exceeds the limit.

The Tax Credit Expansion

If passed in its most current form, the proposed child tax credit expansion promises to provide temporary yet substantial assistance to lower-income families and individuals who typically don’t fully benefit from this tax credit.

• For taxes filed in 2024, the maximum refundable pre-child amount, currently set at $1,600, would increase to $1,800. Subsequently, for taxes filed in 2025 and 2026, this amount would increase to $1,900 and $2,000, respectively.
• Beginning with tax returns filed this year and continuing through the tax year 2025, there will be alterations to the refundability calculations. During this period, parents and caregivers would be able to consider how many children they have when calculating their total eligible credit amount, resulting in a fairer distribution of credits.
• For eligibility for the refundable child tax credit, individuals must earn a minimum of $2,500. In 2024 and 2025 tax years (when taxes are filed in 2025 and 2026), taxpayers have the option to utilize either their current year or previous year’s earned income to fulfill this requirement. This flexibility is particularly crucial for lower-income families who may not meet the threshold due to earning insufficient income in a specific year.
• If passed, major tax software programs should be updated to take into account the revised maximum refundable per-child amount.

What Happens Next?

The House of Representatives voted 357-70 on January 31 to pass the bill, sending it to the Senate, where it will need 60 votes to pass. If it does pass, the IRS estimates that funds could be issued within six to 12 weeks. The IRS has stressed that taxpayers should not wait on the passage of this bill to complete their tax returns, noting that any additional refunds to taxpayers who have already filed will be taken care of without any additional steps needed on behalf of the taxpayer.