The House of Representatives on Wednesday approved a $79 billion tax proposal that would expand the federal Child Tax Credit, giving low-income parents a boost when it comes to filing income taxes, The Associated Press reported.
The bipartisan bill, authored by Senate Finance Committee Chairman Ron Wyden, D-Oregon, and House Ways and Means Committee Chairman Jason T. Smith, R-Missouri, would make the existing child tax credit more generous for lower-income filers with children and would keep several business tax breaks in place, The New York Times reported.
The bill, which passed on a vote of 357-70, will still have to be passed by the Senate and signed by the president to go into effect.
“This is a win for millions of small businesses, a win for millions of working families, a win for America,” Smith said during debate on the House floor on Wednesday.
If the bill passes the Senate intact, here is what the bill would mean to you:
For most people who currently qualify for the tax credit, things would not change. However, what could change for those taxpayers would be that the credit would be indexed to the inflation rate each year, meaning if inflation is up, you will see a little bigger credit.
Under current law, the credit is $2,000 per child. However, not everyone gets the full $2,000. Parents who owe little in federal income taxes do not get the full credit. The lowest-income filers get only $1,600 per child in what is called a refundable tax credit.
The full $2,000 is available to those with annual income levels not more than $200,000 ($400,000 if filing a joint return). Currently, to qualify for any of the credit, families must earn at least $2,500 a year.
A single parent of one child must earn about $24,800 before becoming eligible for the full $2,000 credit; a married couple with two children must earn about $35,700.
How is the expanded Child Tax Credit different?
The biggest change the deal would bring is that it would make the credit more generous for families who currently earn too little to claim the full credit.
Under the new deal, the structure would stay in place, but lower-income families would be eligible to receive more money (refundable credits) even if they do not qualify for the full $2,000.
The bill proposes raising the maximum refundable amount per child from $1,600 to $1,800 in tax year 2023, to $1,900 in tax year 2024, and to $2,000 by tax year 2025.
What is a refundable tax credit?
A refundable tax credit is an amount of money that taxpayers can subtract directly from the taxes they owe. For instance, if you owe $2,000 in taxes and have a refundable tax credit of $1,600, you now only owe $400 in taxes.
If you owe $2,000 in taxes and have a refundable tax credit of $3,200, you will receive a refund of the difference -- $1,200.
In addition to the tax credits, the agreement includes:
- A way to make it easier for firms to claim tax deductions on interest expenses, research and development expenses, and investments in equipment.
- An expansion of a tax credit for the construction of low-income housing
- Promoting economic ties between the U.S. and Taiwan.
How much would you get?
You can click on this link to a Washington Post calculator that lets you enter information to determine how much you would get under the new bill.
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