(NEXSTAR) – If a bipartisan bill announced Tuesday becomes law, American parents will be some of the major beneficiaries.
The roughly $78 billion in tax cuts would also go to expanding the child tax credit, as well as tax credits for businesses, however the bill faces a potentially tough track to passage.
The announcement was made by chairmen of the top tax policy committees, Sen. Ron Wyden (D-Ore.), chairman of the Senate Finance Committee, and Rep. Jason Smith (R-Mo.), chairman of the House Ways and Means Committee.
How will I benefit?
The current child tax credit is $2,000, but only slightly more than 75% of that, or $1,600, is refundable at tax time.
Refundable tax credits are still paid out in cash once one’s tax bill has been reduced to zero, whereas nonrefundable tax credits can only be used to pay down tax debt and any remaining credit will be forfeited.
Under the proposed legislation, the child tax credit would increase the maximum refundable child tax credit to $1,800 for 2023 tax returns, $1,900 for the following year, and $2,000 for 2025 tax returns.
You can claim the child tax credit as long as you have a child with a Social Security number valid for employment in the U.S., according to the IRS. For filing 2023 taxes a qualifying dependent should:
- Be under the age 17 at the end of the year
- Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece or nephew)
- Provide no more than half of their own financial support during the year
- Have lived with you for more than half the year
- Be properly claimed as your dependent on your tax return
- Not file a joint return with their spouse for the tax year or file it only to claim a refund of withheld income tax or estimated tax paid
- Have been a U.S. citizen, U.S. national or U.S. resident alien
The child tax credit also has a cap on earnings – parents who earn more than $200,000 ($400,000 if filing jointly) won’t be eligible for the full 2023 Child Tax Credit, but may receive a partial credit.
The bill would primarily benefit low-income families.
“Sixteen million kids from low-income families will be better off as a result of this plan, and given today’s miserable political climate, it’s a big deal to have this opportunity to pass pro-family policy that helps so many kids get ahead,” Wyden said in a statement.
During the COVID-19 pandemic, The American Rescue Plan boosted the child tax credit from $2,000 to $3,000 for children over the age of 6, and from $2,000 to $3,600 for children under 6. Lawmakers allowed the enhanced benefits, which were credited with a broad reduction in child poverty in 2021, to expire at the end of that year.
Along with parents, business owners also stand to benefit from the new bill, which would allow companies of all sizes to deduct research and development costs immediately instead of over a five-year period. It would also allow businesses to fully deduct the purchase of equipment, machinery and technology. And, the bill also provides more flexibility in determining how much borrowing can be deducted.
Money to pay for the deal would come from an accelerated end to the COVID-era program rewarding businesses with tax breaks for keeping employees on their payroll.
Could I see a tax break this year?
Wyden said his goal is to gain approval for the measure in time for businesses and families to benefit during the upcoming filing season.
The Internal Revenue Service will begin accepting and processing tax returns on Jan. 29, so lawmakers are looking to move the bill as quickly as possible.
Meeting that goal may prove difficult as lawmakers are already racing to finish their spending bills and are considering a bill focused on both aiding Israel and Ukraine, and stemming the flow of migrants entering the country at the U.S.-Mexico border.
One option would be for leaders in the House and Senate to attach the measure to one of those top-priority bills.
The Associated Press contributed to this report.