Congress considers expansion of the Child Tax Credit for 2024: how much would it increase in value?

The US Internal Revenue Service will begin processing tax returns and delivering refunds on Monday, 29 January.

One of the most valuable credits that millions of families can claim is the federal Child Tax Credit (CTC). In 2021, as a part of the American Rescue Plan (ARP), the Democratic Congress was able to change the credit structure and increase its value. The CTC was made refundable, and the value was increased from $2,000 per child ($1,600) to $3,600 for children under six and $3,000 for those between six and seventeen. The ARP also mandated that the IRS create a system to distribute monthly payments worth $300/$250 per eligible child, and with around twenty-four million more children able to benefit from the credit, child poverty was cut in half in just one year. Since the expanded credit expired, child poverty rates have surged once again.

While no further legislation was passed to make these changes permanent, a new bill circulating on Capitol Hill would increase the value starting this year. But what are the chances of the legislation passing? Well, with Republicans in control of the House of Representatives, any expansion seems unlikely unless it is paired with a decrease in spending somewhere else in the budget.

How is the credit currently structured?

Taxpayers with eligible children can claim a tax credit of up to $2,000 per child. To claim the partially refundable credit, the taxpayer must have had an annual income above $1,600.

The non-refundable portion of the credit will reduce taxes owed dollar-for-dollar. If the taxpayer owes less taxes than the refundable amount, the difference will be added to their tax refund. To claim this credit, the filer must complete Schedule 8812.

Eligible dependents must meet a comprehensive list of requirements relating to the relationship to the taxpayer, the child’s age, the amount of financial support provided by the taxpayer, and their status as a citizen or legal permanent resident. More information on qualifying dependents can be found on the IRS website.

A look at the current proposal to enhance the credit’s value

There is renewed bipartisan interest in expanding the CTC on a more permanent basis in the Senate. Two senators, Democrat Ron Wyden (OR) and Missouri GOP Representative Jason Smith, have released a proposal that would increase the value of the CTC over the next three years until the refundable portion of the credit reached $2,000:

Another critical component of the proposed legislation would be to tie the value of the credit to inflation, meaning that as prices increase, the value of the credit would offset any losses in purchasing power that higher prices erase.