A boost to the child tax credit could increase tax refunds for millions of taxpayers this coming tax season, with parents who have children under 17 potentially enjoying a credit worth up to $2,500 per child, up from $2,000 currently, if a proposed Republican bill becomes law.
But the increase would be temporary, starting this year and ending in 2028, at which point the tax credit would revert back to a maximum of $2,000 (that amount would increase with inflation each year).
And a new rule could disqualify millions of children who are eligible under the tax credit’s current rules.
The boost to the child tax credit is part of a $3.8 trillion tax bill introduced this week by House Republicans, part of the comprehensive “big, beautiful” bill President Donald Trump is eager to sign into law by July 4. The package includes an extension of most of the 2017 Tax Cuts and Jobs Act (TCJA), many provisions of which are set to expire at the end of 2025, along with some of Trump’s key campaign promises, including eliminating taxes on tips and overtime pay.
While many families would benefit from a higher credit, millions of families would be newly excluded from claiming the child tax credit due to a rule change requiring any parent or guardian claiming the credit to have a valid Social Security number, including both spouses if the taxpayers are married filing jointly.
Currently, the rules state that to qualify for the credit, the child, rather than the parent, must have a Social Security number.
Under the proposed new rule, about 4.5 million children who are citizens or legal permanent residents and who qualify for the child tax credit under current rules would no longer be eligible for the credit because their parents don’t have a Social Security number, according to estimates by the Center for Migration Studies, a research organization and educational institute.
Proposed changes to the child tax credit
The House GOP bill proposes a number of changes to the child tax credit. The bill, if passed, would:
- Temporarily increase the credit to a maximum of $2,500, from $2,000 currently, effective from 2025 through 2028, at which point the maximum credit would drop back to $2,000. (Unless Congress acts this year, the child tax credit will drop to a maximum of $1,000 per child starting in 2026.)
- Make the maximum $2,000 credit amount permanent. Before the TCJA, the child tax credit was worth up to $1,000. The TCJA temporarily doubled that amount, and the proposed bill would make that permanent.
- Add a new rule that requires parents and guardians of qualifying children to have a valid Social Security number to claim the credit. Currently, only the child is required to have one.
- Maintain the current income limits for claiming the credit. Currently, the value of the credit starts to phase out if your modified adjusted gross income is $400,000 for married couples who file jointly or $200,000 for all other filers. If Congress doesn’t act, the income limits revert to pre-TCJA levels, which were much lower: $110,000 for married couples filing jointly and $75,000 for all other filers.
- Automatically adjust the credit amount to reflect inflation, starting in 2027. Current law does not adjust the child tax credit for inflation.
- Make the tax credit for other dependents permanent. The TCJA established a $500 credit for other dependents who don’t qualify for the child tax credit — this tax credit is also slated to end at the end of 2025. The Republican’s proposed tax bill would extend this credit.
Millions of children already don’t qualify for full credit
Currently, to qualify for the child tax credit, families must earn at least $2,500. The value of the credit phases in gradually, with every dollar earned above $2,500 accruing 15 cents’ worth of credit.
That means that a parent or guardian who earns less than $2,500 is ineligible for the credit, and those earning less than about $13,000 receive only a partial credit.
The House proposal for the expanded child tax credit doesn’t change the minimum earnings amount, nor the accrual rate.
Under current law, about 17 million low-income children receive no credit or less than the full credit, according to the Center on Budget and Policy Priorities (CBPP), a liberal-leaning research organization.
A single parent earning $16,000 with two children receives $1,013 per child, while a married couple earning $400,000 with two children receives almost twice as much, or $2,000 per child, according to a CBPP example.
A number of left-leaning organizations recommend lawmakers seek solutions to help low-income families, such as phasing in the credit on the first dollar of earnings or allowing all parents of newborns to receive the full $2,000 regardless of their income level.
Without changes to the child tax credit structure, some experts warn that millions of low-income families with children will be excluded from the child tax credit expansion at the same time that they’re facing likely spending cuts in other federal government programs, such as SNAP and Medicaid.
The history of the child tax credit
The child tax credit was created as part of the Taxpayer Relief Act of 1997 to help ease the financial burden of families with children. Originally, the credit was a nonrefundable tax credit, meaning it only reduced a taxpayer’s taxable income to zero.
In 2001, the Economic Growth and Tax Relief Reconciliation Act made the credit temporarily refundable for certain low-income families. A refundable tax credit lets taxpayers receive money back even if they don’t owe taxes.
Throughout the years, the credit has changed. Most recently, the 2017 Tax Cuts and Jobs Act modified the credit. These modifications included doubling the credit and increasing the income limit that restricts eligibility, allowing more taxpayers to qualify. For 2024, a portion of the credit is a refundable credit up to $1,700 per child.
Child tax credit: What’s next?
Will the new form of the child tax credit become law? That depends on Congress.
More changes are expected to be made to the bill in the coming weeks. Speaker Mike Johnson has said he wants a vote on the tax bill before Memorial Day. If the House passes the bill, it could move to the Senate for a vote, but not without opposition.
Some Republican lawmakers have expressed doubts that the bill will pass because of its huge price tag. If the bill as written does become law, the new child tax credit expansion could affect your tax return as early as next year — that is, it would take effect on your 2025 taxes.
Read the full article here
