The Expanded Child Tax Credit Would Provide Critical Resources for Survivors of DV and all Families
3-18-24 | Kiersten Stewart, Vice President of Public Policy and Advocacy and Karen Herrling, Senior Policy Advisor
Strengthening families through economic support is smart and good public policy! When parents can meet their children’s basic needs and provide food, shelter, and medical care, while also maintaining financial security through emergencies, children are better off.
The Senate is now debating the Tax Relief for American Families and Workers Act of 2024[2] – informally known as the Expanded Child Tax Credit – a key piece of legislation that the House passed with bi-partisan support -that could mean real cash for vulnerable families this year. It would improve the child tax credit provisions so more lower income families and families with multiple children could benefit from the credit. We expect the Senate to decide in the next few weeks whether they take it up.
Here is why it’s so important.
What is the Current Child Tax Credit[3]?
The Child Tax Credit (CTC) is currently available to most parents/caregivers with children under the age of 17.[4] The credit, up to $2,000, can lower taxpayers’ tax payment on a dollar-for-dollar basis. In some cases, it may eliminate a taxpayer’s bill altogether. In general, the credit is nonrefundable, but many low-income taxpayers may be eligible for up to a $1,600 partial refund per child when they don’t owe federal income taxes.[5] This partial refund will increase each year under the new legislation—$1,800 for tax year 2023, $1,900 for tax year 2024, and $2,000 for tax year 2025.
Parent/caregivers must have earnings to quality for the CTC and those earnings cannot be too big or too small. What does this mean? It means that the CTC phases-out for high income taxpayers — $200,000 and above ($400,000 if filing jointly). It also means that it phases-in for low-income taxpayers.
Unfortunately, because of the phase-in provisions in the current law, low-income working families with earnings below $16,000 do not receive the full CTC of $2,000. This is because parents/caregivers must show at least $2,500 of earnings to qualify for the CTC, and then the credit phases-in at 15% per dollar of earnings over $2,500.
Here’s an example: A survivor with one child who earns $12,500 as a teacher’s aide can get the credit as she earns over $2,500. But she does not get the full credit of $2,000. Her credit amount is $1,500 because it is based upon $10,000 of earnings, not $12,500 as she does not get the credit for the first $2,500 of earnings. ($12,500 – $2,500 = $10,000; then $10,000 X 15% = $1,500—the amount of her tax credit).
Also, under the current law, if the parent/caregiver does not owe any federal taxes, the CTC amount can be refunded to her. However, the credit amount that the parent/caregiver can receive as a refund is capped at $1,600. This cap is known as the “refundability cap” and it is written into existing law.
In the example above, if the survivor has no federal tax liability, she can get her CTC of $1,500 in a refund.
One other important point, the CTC as currently constructed is based on parent/caregiver’s earnings and it phases-in one child at a time. Thus, the survivor with earnings of $12,500 as a teacher’s aide receives a tax credit of $1,500 whether she has one, two, or three children. To get the tax credit for each additional child, she would need an additional $12,500 of earnings for the second child, and an additional $12,500 for the third child.
How the Expanded Child Tax Credit Would Help Low-Income Families
The new legislation would make three important changes to the current CTC.
- First, it phases-in a per-child credit for all children at the same time, so a recipient would be able to receive additional money for every child they have.
- Second, it eliminates the refundability cap by tax year 2025, so they could receive the full credit ($2,00) without an artificial limit.
- Third, it includes a lookback provision, meaning the IRS will look at one’s income over the last two years and use whichever year is more advantageous to the parent.
These three changes will give low-income survivors much needed economic support when they file their taxes over the next three years.
The Expanded CTC Would Benefit Millions of Families
Importantly, the benefits of the new CTC are not limited to low-income survivors and their kids. Its reach is widespread — supporting 16 million children who live in low-income families and lifting 400,000 children out of poverty in the first year (tax year 2023) and lifting 500,000 children out of poverty in the final year (tax year 2025).[6]
For all of these reasons we are hopeful the Senate will vote on and pass the Tax Relief for American Families and Workers Act of 2024 this month!
[1] Center on the Developing Child at Harvard University (2021). Three Principles to Improve Outcomes for Children and Families, 2021 Update. Retrieved August 2021 from https://developingchild.harvard.edu/resources/three-early-childhood-development-principles-improve-child-family-outcomes/
[2] H.R. 7024, Tax Relief for American Families and Workers Act of 2024. https://www.congress.gov/bill/118th-congress/house-bill/7024
[3] Futures Without Violence would like to credit Center on Budget & Policy Priorities for their helpful resources and materials on the bipartisan tax credit, all of which helped to develop this 2-page document. https://www.cbpp.org/research/topics/tax-credits-for-individuals-and-families
[4] Internal Revenue Service, “Child Tax Credit.” Last revised or updated January 10, 2024. Retrieved at: https://www.irs.gov/credits-deductions/individuals/child-tax-credit.
[5] Internal Revenue Service, “What You Need to Know about CTC, ACTC, and ODC.” Last updated Nov. 3, 2023. Retrieved at: https://www.eitc.irs.gov/other-refundable-credits-toolkit/what-you-need-to-know-about-ctc-and-actc/what-you-need-to-know
[6] Center on Budget & Policy Priorities, About 16 Million Children In Low-Income Families Would Gain in First Year of Bipartisan Child Tax Credit Expansion, published on January 16, 2024, updated on January 22, 2024. Retrieved from: https://www.cbpp.org/research/topics/federal-tax
