Congress is considering expanding the federal Child Tax Credit (CTC), which could lift as many as 500,000 children above the poverty line.
The bipartisan proposal to expand the CTC would increase the maximum credit amount per child from $1,600 to $2,000 through 2025.
Although this increase is low compared to the American Rescue Plan credit expansion that expired at the end of 2021, the new expansion will help families who currently receive partial credit or no credit due to their family income. This would significantly improve the economic stability of the approximately 19 million children who live in poverty. The Center on Budget and Policy Priorities (CBPP) found this level too low.
The measure would also remove provisions that would impose significant penalties on low-income households with multiple children. As it stands, the child tax credit benefits middle- and high-income households, except for those who need it most.
“This is great news for families. The Child Tax Credit is one of the most innovative pieces of legislation we've seen in years, and will lift millions of children out of poverty in 2021. We saved it,” said Executive Director Airen Arreaza. parentsTogetterAction told Yahoo Finance. “This bipartisan agreement is a step in the right direction.”
Arreaza added: “There are still children who are excluded because their families don't earn enough, which frankly seems like a step backwards. But 19 million children Of these, 80% have either received only partial credit or none at all,” he added. This is a huge improvement. ”
read more: Child Tax Credit: Everything you need to know about the 2023 tax year
“Policies that change the lives of families”
After years of fighting to expand the new child tax credit, families may finally get the relief they need.
“This marks the beginning of a long-awaited reversal from the sharp increase in child poverty that occurred in 2022 following the expiration of the child tax credit and other coronavirus relief measures,” CBPP analysts wrote. Probably,” he wrote. Immediate relief. According to CBPP research, this number includes 3 million children under the age of three.
CBPP analysts said: “This will be the beginning of a long-awaited reversal from the spike in child poverty that occurred in 2022 following the expiration of the Child Tax Credit and other coronavirus relief measures. “It has said.
Under the proposal, half of the 16 million children who would benefit from the credit within a year would live in households with incomes of $630 or more, CBPP said. Approximately 40% of children who would benefit expect their household to receive more than $1,000 in benefits, and approximately 25% of children expect to receive more than $1,400 in their household within their first year. Belongs to a family that benefits from.
This increase will have major implications for low-income households with multiple children, which make up nearly three-quarters of children. They will receive at least $1,000 or more within the first year of credit expansion.
According to the analysis, for a parent with a toddler and a second-grader earning $15,000, the child tax credit expansion would increase from $1,875 to $3,600 in the first year. That's an increase of $1,725.
“This is really encouraging. We know that our parents are really excited for this to happen because this is a policy that will change the lives of families,” Arreaza said. “We hear over and over again about parents really struggling as it becomes increasingly difficult to support their families, but benefits like this can make a difference.”
Complete coverage: 2024 Taxes — Everything You Need to File Your Taxes on Time
When the American Rescue Plan temporarily expanded the federal child tax credit, the nation's child poverty rate was cut in half to a historic low of 5%.
According to the U.S. Census Bureau, the pandemic-era expansion has lifted 3 million children out of poverty, with most parents using credit payments for important everyday expenses such as shelter costs, food, and child care. It is said that he did.
“Some parents told us they no longer have to make impossible choices between paying rent and buying school supplies, or paying their medicine and utility bills,” Arreaza said. he pointed out. “My favorite stories are of parents who are now able to finally afford soccer cleats and karate lessons for their children, making their lives better.”
The Rescue Plan CTC increased the maximum credit amount from $2,000 to $3,600 for children under the age of 6 and to $3,000 for children between the ages of 6 and 17. It was the first time a 17-year-old participated. This credit was fully refundable. That means households with little or no income will be eligible for the tax credit for the first time.
In 2021 alone, the Temporary Child Tax Credit reduced child poverty by 46%, lifting 716,000 Black, 820,000 White, and 1.2 million Latino children and families out of poverty. .
“This was an amazing achievement,” Marisa Calderon, president and CEO of Prosperity Now, said in an emailed statement. “While this was a huge success that benefited millions of children and their families, it was only temporary. When the Child Tax Credit was cut, child poverty increased; Millions of children and families have been thrown back into poverty.”
The failure to renew the CTC at the time and the end of pandemic stimulus payments had a severe impact on the economic stability of American children. The U.S. Census Bureau revealed that the child poverty rate more than doubled from 4 million in 2021 to 9 million in 2022.
Those most affected were the most systemically vulnerable groups. The largest increase in 2022 was in black and Latino child poverty. According to the Census Bureau, poverty among Black children increased from 8.3% to 18.3%, and poverty among Latino children increased from 8.4% to 19.5%.
A new proposal could significantly reverse some of these trends.
Within the first year of the proposal, more than one in five children under 17 would benefit from the expanded tax credit, according to CBPP analysts. Black, Latino, American Indian, and Alaska Native children would also benefit the most.
More than 1 in 3 Black and Latino children under 17 will receive immediate relief, followed by 3 in 10 Alaska Native children and 7 in white and Asian children. 1 person follows.
While the new proposal for CTC expansion has some benefits, it falls short in other areas. The bipartisan compromise does not include children from families with no income.
“More needs to be done to fully reverse this increase, and any opportunity to strengthen proposals to improve the impact on children from low-income households would of course be desirable. ” wrote the CBPP researchers.
Changes include lookback provisions, refundability
The new design of the expanded child tax credit makes several improvements.
First, the expansion would eliminate a provision that reduces tax credits for low-income households with multiple children. Instead, the proposal would provide the same size of credit to each child in the family as for higher-income households.
Under the current child tax credit, the lowest income families with two or three children receive the same total credit as a family with one child at the same income level.
Second, taxpayers can use the current or previous year's income when calculating the child tax credit amount. The introduction of a 'lookback clause' will allow households whose income has fallen and are no longer eligible for the credit to use their previous year's income in the 2024 and 2025 tax years.
Third, the proposal would change the refund limits so that households with modest incomes could receive more tax credits. The current cap is set at $1,800, but is scheduled to increase to $1,900 in 2023 and $2,000 in tax year 2025.
“Now is the time to move forward,” Calderon said. “We need Congress to show up for families and do everything in its power to make sure this deal passes. There is a real opportunity for Congress to give families and children the support they need this year.”
gabriella I'm a personal finance and housing reporter for Yahoo Finance. Follow her on X @__Gabriela Cruz.
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