In a 357-70 vote on January 31, the House advanced a bipartisan tax deal that pairs some business tax breaks with an important expansion to the Child Tax Credit (CTC). If signed into law, this legislation could lift hundreds of thousands of children out of poverty and benefit millions of low-income families
Here’s a breakdown of everything you need to know about the bill and the vital role that the CTC can play in reducing the scourge of poverty in the United States.
Current Benefits of the Child Tax Credit
Because of the way the current CTC structure works, low-income families who are experiencing or are at risk of poverty don’t receive the same level of benefits that wealthier families do.
Here’s how it works. The CTC is currently $2,000 per child. The credit is partially refundable. That means families can still get some of the benefit even if they don’t owe income tax. Families can claim 15% of every dollar above $2,500 towards the refundable Child Tax Credit.
There are 19 million children who do not receive the full CTC amount because their parents do not make enough money.
This 15% phase-in is the same regardless of the number of children. Therefore, a family earning $12,500 with one child gets a $1,500 CTC, and a family earning $12,500 with three children gets the same $1,500.
In comparison, a family earning $400,000 with three children gets $6,000 (the full $2,000 for each child). Additionally, the CTC refundability amount is currently capped at $1,600 per child, essentially capping the total credit amount for a low-income family.
Currently, there are 19 million children who do not receive the full CTC amount because their parents do not make enough money.
Proposed Changes in the Bipartisan Tax Bill
The Tax Relief for American Families and Workers Act (H.R. 7024) would expand the Child Tax Credit for millions of low-income families. It would phase in the credit per child for low-income families so they receive the same credit for each of their children.
The Center on Budget and Policy Priorities estimates that the changes in H.R. 7024 would benefit 16 million low-income children and lift up to 400,000 kids out of poverty. The impact would be especially significant for children of color. More than a third of all Black and Latino children would benefit.
Put simply, these numbers make clear that poverty is a policy choice. And Congress must choose to undo this damage.
It would gradually raise the cap on refundability, eliminating it by 2025. A parent earning $15,000 with two kids would go from getting $1,875 to $3,600. The bill also allows families to use the prior year earnings if those result in a larger credit. For example, a family has a baby in 2024 may have higher earnings in 2023 if one parent reduces their hours in the first few months of that infant’s life. That family could use the 2023 earnings for calculating their CTC amount for tax year 2024.
The 2017 Tax Cuts and Jobs Act (TCJA) passed under former President Trump required a Social Security Number for each child getting the Child Tax Credit. FCNL has been advocating for families to be able to use an Individual Taxpayer Identification Number (ITIN) to claim the CTC. Unfortunately, this legislation does not make that improvement.
The Choice Ahead for Congress
We saw a historic drop in the U.S. child poverty rate in 2021 because of the expansions to the Child Tax Credit as a part of the American Rescue Plan. Then, just as quickly, child poverty shot right back up in 2022 when Congress failed to extend those expansions, resulting in the single largest increase in poverty and child poverty on record.
Put simply, these numbers make clear that poverty is a policy choice. And Congress must choose to undo this damage. This starts with the Senate taking up the Tax Relief for American Families and Workers Act and sending it to President Biden’s desk without delay.
This legislation won’t bring us back to the 2021 child poverty rate, but it will make a significant difference for millions of families struggling to get by. No other legislation before this Congress would have such an impact in reducing child poverty.
