Announcement of Updated Child Tax Credits in the New Bipartisan Deal

Bipartisan (two political parties that usually oppose each other's policies) Agreement Unveiled by Congress.

As the funding deadline looms, lawmakers have revealed a bipartisan deal encompassing a revamped child tax credit, aiming to partially reinstate the pandemic-era expansion. Senate Finance Committee Chair Ron Wyden, D-Ore., expressed optimism about the plan, emphasizing its potential positive impact on fifteen million children from low-income families. The goal is to pass the updated child tax credit before the onset of tax season on Jan. 29, though certainty remains elusive.

If Congress approves the child tax credit by Jan. 29, eligible families could see benefits as early as next month, applying to the 2023 tax year (for returns filed in early 2024). While the proposed expansion may not match the extent of President Joe Biden's American Rescue Plan, key features of the newly announced deal include:

1. Ensuring larger portions of the credit for families with lower incomes and multiple children.
2. Adjusting the refundable portion of the child tax credit for inflation.

These details are not official until the deal passes Congress, but families with lower incomes and multiple children stand to gain the most if the expansion occurs. Even if the expanded credit doesn't become law, the refundable portion of the child tax credit is set to increase for the 2024 tax year.

Child Tax Credit Update: Funding and Compromises

The proposed expansion comes with an estimated cost of around $78 billion, with negotiations focusing on funding mechanisms. One option discussed is reclaiming funds from another pandemic-era tax credit, the employee retention credit (ERC). The ERC, designed to encourage businesses to retain employees, faced challenges due to fraudulent claims, leading to a moratorium on new claims in 2023.

However, funding is not the sole challenge for Democrats. The broader tax deal includes compromises on various issues, such as restoring certain business incentives from the Tax Cuts and Jobs Act (also known as the Trump Tax Cuts).

Impacts of an Expanded Child Tax Credit

The pandemic-era expanded child tax credit played a crucial role in reducing child poverty, but its expiration led to an increase in the poverty level. Data indicates a rise from 5.2% to 12.4% when families could no longer benefit from the expansion. While past attempts to revive the federal expanded child tax credit have failed, lawmakers are now closer than ever to partially restoring this crucial support.