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President-elect Joe Biden has already articulated his plan to deliver more financial support to Americans affected by the COVID-19 pandemic. It includes another round of stimulus checks, expanded unemployment benefits and more aid for state and local governments. But tucked into those plans is another benefit worth watching — the Child Tax Credit, which may be an increasingly important tax advantage to families next year.
At a basic level, the Child Tax Credit is exactly what it sounds like: a tax credit that parents can claim to help reduce their tax bill. For many, it may provide a much-needed source of relief as part of a 2020 tax year refund.
Here’s everything you need to know about the CTC, including eligibility requirements for you and your kids, how much it’s worth and Congress’s prospective plans to enhance it.
What is the Child Tax Credit?
The CTC is a $2,000 credit parents can claim on their taxes for every child under the age of 17. And if that credit exceeds the amount of taxes that a family actually owes, parents can still receive up to $1,400 of the balance as a refund; this is technically referred to as the “Additional Child Tax Credit” or refundable CTC. For example, a married couple with children ages 5, 10 and 12 would receive a total child tax credit of $6,000 — unless they’re due a refund, in which case they would receive $4,200.
Families with older kids are also eligible: You can claim $500 for each child aged 17 and 18, or full-time college students between the ages of 19 and 24.
Note that although the eligibility requirements are relatively broad, higher-income families may receive a reduced credit. But married couples filing jointly with an adjusted gross income under $400,000 are eligible for the full amount, as are individuals with an AGI under $200,000.
What does the CTC have to do with the stimulus talks?
The House of Representatives passed the scaled-down Heroes Act back in October. It expanded on the financial relief first laid out in the CARES Act from March — but it’s since been held up in the Senate by Republicans. The COVID-related highlights of the $2.2 trillion package garnered most of the headlines: another round of stimulus checks, expanded unemployment coverage, eviction protections, more money for the Paycheck Protection Program and funding for coronavirus testing, tracing and treatment. But buried in the stalled bill were some meaningful tweaks to the CTC.
Under a newly proposed version of the Heroes Act, called the Heroes Act 2.0, the CTC would still top out at $2,000, but families could receive the full amount as a refund, if applicable, instead of the current $1,400 maximum. The original Heroes Act — passed by the House of Representatives in May but not the Senate — would have increased the maximum to $3,000 or $3,600 for children under the age of 6.
Increasing the refund amount to $2,000 would lift more than 3 million people out of poverty, according to the Center on Budget and Policy Priorities.
Who’s in favor of it?
Politicians from both parties have expressed support for expanding the CTC.
“The child tax credit has overwhelming bipartisan support for a reason,” Sen. Mike Lee, a Republican from Utah, told the Wall Street Journal Wednesday. “Whoever controls the White House, the House and the Senate — anyone who wants to increase the CTC will have my support.”
Why does this tax credit get so much support? Generally, because when taxes are refunded to families, they tend to spend it.
“Getting money into the hands of lower-income people is a long-standing time-honored approach for stimulating the economy,” said Mark Mazur, director of the Urban-Brookings Tax Policy Center.
Republicans first proposed the CTC back in 1997 as part of the Taxpayer Relief Act. And it was Sen. Marco Rubio, a Republican from Florida, who spearheaded the Tax Cuts and Jobs Act of 2017 that doubled the credit from $1,000 to its current amount. Having Democrats pushing for a tax credit Republicans created makes the likelihood for bipartisan support for improving the credit to benefit families.
