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Congress is considering expanding the child tax credit.
The House passed a bipartisan $78 billion tax bill Wednesday that temporarily expands the child tax credit and restores many corporate tax breaks. The bill now heads to the Senate, where its fate remains uncertain.
Overall, the deal will not have a significant impact on the federal budget. Revenue is expected to decline by less than $400 million over 10 years.
Here are the details:
What happens with this transaction:
This would increase the cap on refundable deductions for households that pay little or no income tax. That would allow low-income households to claim more credits.
Low-income families with multiple children would receive the same credit for each child that higher-income families already receive.
Families will be able to choose whether to spend their income in the current year or the previous year, in case their income is unstable.
The credit will be adjusted for inflation starting in 2024.
This provision will be effective for three tax years from 2023 to 2025.
What this agreement does not do:
Unlike the temporary child tax credit expansion in the American Rescue Plan Act of 2021, the current agreement does not increase the credit amount to $3,600 for many households, and low-income families receive the full amount, regardless of income. The deduction will not be available. Nor do we distribute half of it every month.
The minimum earnings threshold of $2,500 required to begin claiming the credit remains unchanged.
The requirement that a child must have a family member's Social Security number to apply for the credit remains the same.
The impact on families is as follows:
According to the left, the deal would provide more credits in the first year to about 16 million low-income families with children, more than 80% of whom currently do not receive the full credit because their family income is too low. will be provided. -Learn mainly about budget and policy priorities.
According to the center, half of the approximately 16 million children live in households with incomes of $630 or more.
More than 1 in 3 Black and Latino children under 17 will benefit in the first year, as well as 3 in 10 American Indian and Alaska Native children, the center said. One in seven white and Asian children will also benefit.
According to the center, if the proposal takes full effect in 2025, the policy will lift at least 500,000 children out of poverty and improve the economic situation of around 5 million children who remain below the poverty line. It is said to become.
Households with moderate or higher incomes, and some low-income households, would benefit to some extent from the inflation adjustment provisions. The center projects that by 2025, the maximum loan amount per child will increase from the current $2,000 to $2,100.
According to the nonpartisan Tax Policy Center, changes to the child tax credit and business taxes will increase households' after-tax income by an average of $160 in 2023, with lower-income and higher-income taxpayers seeing a more pronounced increase. They will receive a tax reduction.
Business tax reductions and other provisions
The main business provisions within the package are:
Companies will be able to deduct the costs of investing in U.S.-based research and experiments immediately, rather than over five years.
The agreement allows companies to immediately deduct 100% of their investments in machinery and equipment.
The stricter restrictions on deductibility of interest payments, which mainly affect companies with large amounts of debt, will be eased.
These tax cuts were originally part of the Republican Tax Cuts and Jobs Act of 2017, but recently ended or began to be phased out.
The three provisions will remain in place until 2025.
The other clauses are as follows:
The policy would eliminate the current double taxation of companies and workers operating in both the United States and Taiwan.
This will increase the amount of investment that small and medium-sized businesses can quickly write off. This cap will be indexed to inflation from his 2024 onwards. This provision never expires.
The agreement will provide relief to people affected by recent hurricanes, floods, wildfires, and disasters such as last year's Ohio train derailment in East Palestine.
Strengthen the low-income housing tax credit to increase the supply of low-income housing. Novogradac says this will provide more than 200,000 new and preserved affordable rental homes.
The deadline for filing backdated claims for the Employee Retention Credit, a fraud-riddled, COVID-19-era program, will now be brought forward to January 31, 2024 instead of April 15, 2025. Become. This provision is estimated to result in additional savings for taxpayers. More than $78 billion would offset most of the package's costs, according to the Joint Committee on Taxation.
This story has been updated with additional developments.
