In a recent update, the U.S. House of Representatives has approved a bill that has the potential to grant families significant tax benefits. The aim is to strengthen tax breaks, offering substantial financial support to American households and leading to significant savings. Among the many items addressed in the bill is the expansion of the Child Tax Credit (CTC), a tax benefit designed to assist families with the cost of raising children. In this article, we’ll review the details of the CTC expansion and the next steps needed to pass the bill.
What is the Child Tax Credit?
The Child Tax Credit is a tax benefit provided to eligible families for each qualifying child under 17. It’s designed to help families with the cost of raising children by reducing their federal income tax liability. Eligible families can receive a credit of up to a certain amount per child. The amount may vary depending on factors such as income level and number of children. In some cases, the credit is partially refundable, meaning that families may receive a refund even if they owe no taxes.
Eligibility Criteria
The eligibility requirements for the Child Tax Credit (CTC) typically include the following criteria:
- Age of Child: The child must be under the age of 17 at the end of the tax year for which the credit is being claimed.
- Relationship: The child must be the taxpayer’s son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them (such as a grandchild, niece, or nephew).
- Dependent Status: The child must qualify as a dependent on the taxpayer’s federal income tax return.
- Residency: The child must have lived with the taxpayer for more than half of the tax year. Certain exceptions apply for temporary absences, such as for school, vacation, medical care, or military service.
- Citizenship: The child must be a U.S. citizen, U.S. national, or resident alien.
- Support: The child must not provide more than half of their own support during the tax year.
- Filing Status: The taxpayer must file as Single, Head of Household, Married Filing Jointly, or Qualifying Widow(er) with Dependent Child.
- Income Limits: The taxpayer must have earned at least $2,500 but not more than $200,000 ($400,000 if filing jointly) to claim the full tax credit. Income over this amount will result in a partial credit.
Proposed Expansion
Under the proposed changes, the tax credit would remain fixed at $2,000 per child. However, the portion of the credit that is refundable would see an increase, potentially benefiting numerous families nationwide. The maximum refundable portion per child would rise from $1,600 to $1,800 in 2023, then to $1,900 in 2024, ultimately becoming fully refundable by 2025. Furthermore, the credit would be adjusted annually to account for inflation. When the House of Representatives voted on the bill in January 2023, it passed with overwhelming support from both Democrats and Republicans. The bill is waiting to see a vote from the Senate, which has yet to be scheduled.
Don’t Wait to File Your 2024 Taxes
The 2024 tax season is underway. However, the IRS has reported reduced tax filing activity compared to this time last year. That said, there are suspicions that this is because taxpayers are waiting to see what happens with the Child Tax Credit. Taxpayers are urged to file anyway. The IRS has publicly stated that if the Senate does pass the bipartisan bill, it could take anywhere from six to 12 weeks to implement the changes for the 2023 tax year. This means waiting could result in a late tax return, which means penalties and possible interest. Taxpayers can find relief in knowing that the IRS plans to issue additional refunds later for those who have filed if the bill is passed. No additional actions will be needed on the taxpayer’s end.
Tax Help with the Child Tax Credit
Taxpayers should not delay filing their taxes while waiting for the Child Tax Credit bill to be passed. It’s crucial to file taxes in a timely manner to avoid potential penalties or late fees. Additionally, the tax filing process can take time. Waiting until the last minute could lead to rushed or incomplete submissions. Furthermore, if the CTC bill is passed, the IRS will make sure eligible taxpayers receive their due refunds. Therefore, taxpayers should proceed with filing their taxes promptly, ensuring accuracy and compliance with current tax regulations, while remaining vigilant for any updates or changes in tax laws that may affect their eligibility for credits or deductions. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
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