What’s the child tax credit and how can it help my family? What to know for tax season 2020
officially unveiled his Thursday. Along with a , , and , he also included an extension to the Child Tax Credit, which would allow families to receive more money from their taxes. Biden’s proposal is not law.
At a basic level, the Child Tax Credit (CTC) is exactly what it sounds like: a tax credit that parents can claim to help reduce their tax bill. For many, it may provide a much-needed source of relief as part of a 2020 tax year refund.
Here’s everything you need to know about the CTC, including eligibility requirements for you and your kids, how much it’s worth and Congress’s prospective plans to enhance it.
What is the Child Tax Credit?
The CTC is a $2,000 credit parents can claim on their taxes for every child under the age of 17 (the same age range for when it comes to .) And if that credit exceeds the amount of taxes that a family actually owes, parents can still receive up to $1,400 of the balance as a refund; this is technically referred to as the “Additional Child Tax Credit” or refundable CTC. For example, a married couple with children ages 5, 10 and 12 would receive a total child tax credit of $6,000 — unless they’re due a refund, in which case they would receive $4,200.
Families with older kids are also eligible: You can claim $500 for each child aged 17 and 18, or full-time college students between the ages of 19 and 24.
Note that although the eligibility requirements are relatively broad, higher-income families may receive a reduced credit. But married couples filing jointly with an adjusted gross income under $400,000 are eligible for the full amount, as are individuals with anunder $200,000.
What does the CTC have to do with a stimulus bill?
In Biden’s “American Rescue Plan (PDF),” families with children under the age of 17 and under would receive a credit of $3,000 while those with children under the age of 6 would receive a $3,600 credit. His plan also calls for the entire amount to be available for a refund instead of the current $1,400.
The plan also calls for families to receive a credit for child care. A family with one child could receive a total of up to $4,000 and those with two more children can receive $8,000. This tax credit would be refundable and available to families making less than $125,000 a year. A family with an income of $125,000 to $400,000 will receive a partial credit although the specifics of how much has yet to be announced.
“The Biden plan is the most impressive and ambitious child poverty plan ever in the United States,” tweeted economist Jason Furman, a former adviser in the Barack Obama administration. “This would not just help in the short run but have long-run mobility benefits as well.”
Increasing the refund amount to just $2,000 would lift more than 3 million people out of poverty, according to the Center on Budget and Policy Priorities.
Who is in favor of the extended Child Tax Credit?
Politicians from both parties have expressed support for expanding the CTC.
“The child tax credit has overwhelming bipartisan support for a reason,” Sen. Mike Lee, a Republican from Utah, told the Wall Street Journal on Nov. 19. “Whoever controls the — anyone who wants to increase the CTC will have my support.”
Why does this tax credit get so much support? Generally, because when taxes are refunded to families, they tend to spend it. That economic spending is then expected to strengthen economic activity.
“Getting money into the hands of lower-income people is a long-standing time-honored approach for stimulating the economy,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
Republicans first proposed the CTC back in 1997 as part of the Taxpayer Relief Act. And it was Sen. Marco Rubio, a Republican from Florida, who spearheaded the Tax Cuts and Jobs Act of 2017 that doubled the credit from $1,000 to its current amount. Having Democrats pushing for a tax credit Republicans created makes the likelihood for bipartisan support for improving the credit to benefit families.